----------------------------
The latest report from your
Fund's management team
----------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC]
High Yield
Bond Fund
NOVEMBER 30, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
------------------------------------------
TRUSTEES
STEPHEN L. BROWN
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R. DION*
MAUREEN R. FORD
ANNE C. HODSDON
CHARLES L. LADNER
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)
JOHN P. TOOLAN
*Members of the Audit Committee
OFFICERS
STEPHEN L. BROWN
Chairman
MAUREEN R. FORD
Vice Chairman and Chief Executive Officer
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Executive Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Vice President and Compliance Officer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
------------------------------------------
===================================CEO CORNER===================================
DEAR FELLOW SHAREHOLDERS:
I am delighted that one of my first official duties at John Hancock Funds is to
welcome you to the New Millennium! I wish you all the best for a century filled
with momentous occasions.
Every New Year, of course, provides us with a built-in opportunity to make new
resolutions, or re-commit to old ones. It seems fitting, therefore, that this
special New Year 2000 coincides with a very important, although certainly less
exotic, event.
Starting last October, personalized Social Security statements are being sent to
125 million workers over age 25, showing estimates of the retirement, disability
and survivor benefits that they and their families are eligible to receive now
and in the future.
The statements, to be sent out annually, will provide people with a glimpse of
what they can expect from the government when they retire. This should be
comforting to those who feared that Social Security wouldn't be there for them
at all. But many people also already know that government benefits will only
fulfill a small piece of their retirement needs.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush right next to fourth paragraph.]
- --------------------------------------------------------------------------------
The best thing about this massive mailing is that it can serve as a wake-up call
to encourage families to focus more on planning for their financial future.
When you receive your statement, expected to be within three months of your next
birthday, we urge you to read it carefully for accuracy, making sure your annual
earnings history and amounts you have contributed over the years are correct.
Keep in mind that the estimated benefits are precisely that, and that rules and
regulations may change by the time you retire. Also remember that they are not
inflation adjusted, so it would be unrealistic to expect them to have the same
purchasing power in the future as they would today.
We also encourage you to use this mailing as a reason to contact your investment
professional, or to select one if you are not working with somebody. He or she
can help you focus on establishing and maintaining a sound plan to achieve a
comfortable retirement. Together, you should make sure to maximize your
participation in tax-advantaged programs like IRAs and 401(k)s.
The stakes are too high to leave your retirement lifestyle to chance. Congress'
awareness-raising effort is commendable. The next step is yours. Mark the
beginning of the New Millennium by taking it.
Sincerely,
/s/ MAUREEN R. FORD
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY ARTHUR N. CALAVRITINOS, CFA, PORTFOLIO MANAGEMENT TEAM
LEADER, AND FREDERICK L. CAVANAUGH, JR., JANET L. CLAY, CFA, AND
DANIEL S. JANIS, PORTFOLIO MANAGERS
John Hancock
High Yield Bond Fund
Bonds struggle in rising interest-rate environment
- --------------------------------------------------------------------------------
Bond investors endured a difficult six months. The U.S. economy remained
surprisingly robust and economies worldwide stabilized or came back to life, so
fears grew that inflation would re-emerge. What's more, the price of oil spiked,
along with those of other commodities. This combination caused interest rates to
rise and bond prices to fall during much of the period. In addition, the Federal
Reserve raised short-term rates three times between June and November to try to
cool off the economy and prevent an outbreak of inflation. U.S. Treasury bonds,
which are the most sensitive to interest-rate moves, were especially hard hit.
High-yield bonds, those rated below investment grade, fared slightly better
than Treasuries, as their higher yields helped them better offset the effect of
price declines. Nonetheless, high-yield bonds had their own set of issues,
starting with an increased number of earnings disappointments and debt defaults.
Demand also fell significantly, as investors turned their attentions to the
high-flying technology sector of the stock market. At the same time, supply
remained fairly high, because many corporations had issued new bonds earlier in
the year to lock in still relatively low rates and avoid potential Y2K problems
later.
Fund performance
For the six months ended November 30, 1999, John Hancock High Yield Bond Fund's
Class A, Class B and Class C shares posted total returns of
"...fears grew that inflation would re-emerge."
- --------------------------------------------------------------------------------
[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock High Yield
Bond Fund. Caption below reads "Fund management team members (l-r): "Janet Clay,
Dan Janis, Arthur Calavritinos and Fred Cavanaugh."]
- --------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - High Yield Bond Fund
"Our energy and paper companies were two areas of strength..."
- --------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Securities." The first listing
is Nextel Communications 2.0%, the second is Repap New Brunswick 1.7%, the third
Key Energy Group 1.6%, the fourth Northwest Airlines 1.5% and the fifth P&L Coal
Holdings 1.4%. A note below the table reads "As a percentage of net assets on
November 30, 1999."]
- --------------------------------------------------------------------------------
1.31%, 0.92% and 0.92%, respectively, at net asset value. That compared to the
- -0.37% return of the average high current yield fund, according to Lipper, Inc.1
Keep in mind that your net asset value return will be different from the Fund's
performance if you were not invested in the Fund for the entire period and did
not reinvest all distributions. Historical performance information can be found
on pages six and seven.
Paper, energy rebound
Rising oil prices and rebounding Asian economies boosted our cyclical companies,
whose fortunes are closely tied to moves in the economy. Our energy and paper
companies were two areas of strength over the last six months, as they came back
from their lows hit in last year's global turmoil.
Our bond and stock holdings in Key Energy Group -- our largest company
position -- rebounded as rising oil prices sparked a wave of new drilling,
fueling demand for the type of well-maintenance services that Key Energy
provides. The same held true for Weatherford, which supplies parts to
natural-gas drillers, and we took profits. We also sold our bonds in natural-gas
driller Grey Wolf. Because we still like the company, we took advantage of the
Fund's ability to own a limited amount of stock to buy Grey Wolf's stock, where
we believe the upside now lies.
Canadian paper company Repap New Brunswick did well as paper prices rose
along with Asian demand, which had virtually dried up during Asia's near
depression last year. Asia Pulp and Paper (APP), the world's lowest-cost paper
provider, also rebounded. Consolidation remains a driving theme in the paper
industry, which we like. One result has been less capacity, which has enabled
the remaining players to raise prices, especially now, when there is no
expectation of new supply coming on line.
Avoiding trouble
Individual security selection was an important factor for us this period --
especially the names we avoided. The number of high-yield companies that failed
to execute their business plans rose during 1999, including such high-profile
names as Iridium and Fruit of the Loom, neither of which we owned. We
sidestepped the worst of the troubles, but not entirely. By definition,
companies rated below investment grade are subject to a greater risk of defaults
and earnings disappointments. Regal Cinemas was an example this period, although
fortunately our stake there is quite modest. Another disappointment was
Integrated Health Services, which was stung by questions about billing practices
in Florida, as well as by industry concerns about the potential for further
reductions in Medicare reimbursements.
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is Key Energy
followed by an up arrow with the phrase "Rising oil prices, returning demand."
The second listing is Northwest Airlines followed by a down arrow with the
phrase "Hit by overcapacity fears." The third listing is Imperial Home Decor
followed by a down arrow with the phrase "Slackening demand from Eastern
European customers." A note below the table reads "See `Schedule of
Investments.' Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
4
<PAGE>
================================================================================
John Hancock Funds - High Yield Bond Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended November 30, 1999." The
chart is scaled in increments of 1% with -1% at the bottom and 2% at the top.
The first bar represents the 1.31% total return for John Hancock High Yield Bond
Fund Class A. The second bar represents the 0.92% total return for John Hancock
High Yield Bond Fund Class B. The third bar represents the 0.92% total return
for John Hancock High Yield Bond Fund Class C. The fourth bar represents the
- -0.37% total return for Average high current yield fund. A note below the chart
reads "Total returns for John Hancock High Yield Bond Fund are at net asset
value with all distributions reinvested. The average high current yield fund is
tracked by Lipper, Inc. See the following two pages for historical performance
information."]
- --------------------------------------------------------------------------------
Better quality and value overseas
In contrast to the saturated U.S. market, we are now finding better quality and
value overseas. As a result, we increased our foreign stake to 20% of the Fund's
net assets, up from 16% six months ago. In particular, we added or boosted our
stakes in telecommunications, paper and energy companies. Our biggest positions
are a 4% stake in Canada and 5% in the United Kingdom. In fact, our foreign
holdings were a big contributor to our out performance this period, because
their prices were more steady, at the same time that we continued to earn an
attractive level of current income. Our Fuji Bank preferred stock rose as Japan
implemented financial reforms, and we took profits and pared our stake.
Brazilian company Trikem, a producer of PVC tubing, also did well.
In addition to the foreign paper and energy securities we mentioned earlier,
we also had good results from our telecommunications names. One was VersaTel
Telecom International, a Dutch phone company providing voice, data and Internet
transmission service to small and mid-sized business in Europe, where phone
service remains sub-par and demand for the newest technology is growing rapidly.
Another solid performer was Omnipoint, which was recently taken over by
VoiceStream, as merger and acquisition activity heats up among telecom
companies. We will continue to use our ability to invest overseas to take
advantage of the opportunities that arise as foreign high-yield bond issuance
continues to grow, which is currently happening in Western Europe.
A look ahead
We are keeping our cautiously optimistic outlook for high-yield bonds. After
struggling last year, they continue to present very attractive values and income
streams. Yet we believe individual credit selection is becoming more important
than ever. Nowhere is that more apparent than in the burgeoning telecom
industry, where many companies have been formed in the last several years in the
wake of industry deregulation. What's more, should the U.S. economy slow too
much, it will become more difficult for high-yield companies with aggressive
business plans to reach their earnings targets. We will continue to apply our
in-depth fundamental analysis toward finding companies worth the extra risk we
are taking to own them.
"...individual credit selection is becoming more important than ever."
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
See the prospectus for the risks of investing in high-yield bonds.
(1) Figures from Lipper, Inc. include reinvested dividends and do not take into
account sales charges. Actual load-adjusted performance is lower.
5
<PAGE>
================================================================================
John Hancock Funds - High Yield Bond Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock High Yield Bond Fund. Total return measures
the change in value of an investment from the beginning to the end of a period,
assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 4.5%. Prior to May 15, 1995, the maximum applicable sales charge for
Class A shares was 4.75%. Class B performance reflects a maximum contingent
deferred sales charge (maximum 5% and declining to 0% over six years). Class C
performance includes a contingent deferred sales charge (1% declining to 0%
after one year).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (6/30/93)
------- -------- -----------
Cumulative Total Returns 5.99% 40.64% 46.57%
Average Annual Total Returns 5.99% 7.06% 6.31%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
ONE FIVE TEN
YEAR YEARS YEARS
------- -------- ---------
Cumulative Total Returns 5.19% 40.12% 127.47%
Average Annual Total Returns 5.19% 6.98% 8.57%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
ONE INCEPTION
YEAR (5/1/98)
-------- -----------
Cumulative Total Returns 9.11% (12.28%)
Average Annual Total Returns 9.11% (8.83%)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of November 30, 1999
SEC 30-DAY
YIELD
-------------
John Hancock High Yield Bond Fund: Class A 12.25%
John Hancock High Yield Bond Fund: Class B 12.07%
John Hancock High Yield Bond Fund: Class C 12.07%
6
<PAGE>
================================================================================
John Hancock Funds - High Yield Bond Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock High Yield Bond Fund Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the Lehman
Brothers High Yield Bond Index and is equal to $16,183 as of November 30, 1999.
The second line represents the value of the hypothetical $10,000 investment made
in the John Hancock High Yield Bond Fund on June 30, 1993, before sales charge,
and is equal to $15,555 as of November 30, 1999. The third line represents the
same hypothetical investment made in the John Hancock High Yield Bond Fund,
after sales charge, and is equal to $14,858 as of November 30, 1999.
Line chart with the heading John Hancock High Yield Bond Fund Class B*,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are two lines. The first line represents the Lehman
Brothers High Yield Bond Index and is equal to $26,639 as of November 30, 1999.
The second line represents the value of the hypothetical $10,000 investment made
in the John Hancock High Yield Bond Fund on May 31, 1989, before sales charge,
and is equal to $22,757 as of November 30, 1999.
Line chart with the heading John Hancock High Yield Bond Fund Class C*,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are two lines. The first line represents the Lehman
Brothers High Yield Bond Index and is equal to $9,939 as of November 30, 1999.
The second line represents the value of the hypothetical $10,000 investment made
in the John Hancock High Yield Bond Fund on May 1, 1998, before sales charge,
and is equal to $8,881 as of November 30, 1999.
*No contingent deferred sales charge applicable.
- --------------------------------------------------------------------------------
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on November 30, 1999. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Bonds (cost - $1,084,667,516) ....................... $909,955,747
Common and preferred stocks and warrants
(cost - $192,513,144) ............................. 169,292,331
Corporate savings account ........................... 1,825,887
---------------
1,081,073,965
Receivable for investments sold ....................... 395,230
Receivable for shares sold ............................ 926,453
Interest receivable ................................... 32,043,572
Dividends receivable .................................. 162,911
Receivable for forward foreign currency exchange
contracts sold - Note A ............................. 3,154,624
Other assets .......................................... 74,482
---------------
Total Assets ....................... 1,117,831,237
--------------------------------------------------------
Liabilities:
Payable for shares repurchased ........................ 259,387
Payable for forward foreign currency exchange
contracts purchased - Note A ........................ 474,137
Payable to John Hancock Advisers, Inc. ................
and affiliates - Note B ............................. 701,898
Accounts payable and accrued expenses ................. 57,074
---------------
Total Liabilities .................. 1,492,496
--------------------------------------------------------
Net Assets:
Capital paid-in ....................................... 1,360,320,070
Accumulated net realized loss on investments,
financial futures contracts and foreign
currency transactions ............................... (53,053,187)
Net unrealized depreciation of investments and
foreign currency transactions ....................... (195,306,208)
Undistributed net investment income ................... 4,378,066
---------------
Net Assets ......................... $1,116,338,741
========================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of
shares authorized with no par value)
Class A - $275,448,337/43,730,414...................... $6.30
===========================================================================
Class B - $805,420,762/127,869,291..................... $6.30
===========================================================================
Class C - $35,469,642/5,631,191........................ $6.30
===========================================================================
Maximum Offering Price Per Share:*
Class A - ($6.30 x 104.71%)............................ $6.60
===========================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest ................................................. $63,418,708
Dividends
(net of foreign withholding taxes of $262,173) ......... 5,461,481
------------
68,880,189
------------
Expenses:
Investment management fee - Note B ....................... 2,899,143
Distribution and service fee - Note B
Class A ................................................ 344,657
Class B ................................................ 4,120,719
Class C ................................................ 158,323
Transfer agent fee - Note B .............................. 746,360
Accounting and legal services fee - Note B ............... 111,781
Custodian fee ............................................ 107,694
Registration and filing fees ............................. 83,861
Printing ................................................. 49,531
Trustees' fees ........................................... 25,573
Auditing fee ............................................. 20,654
Miscellaneous ............................................ 21,827
Legal fees ............................................... 9,349
------------
Total Expenses ........................ 8,699,472
--------------------------------------------------------
Net Investment Income ................. 60,180,717
--------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized loss on investments sold .................... (12,983,832)
Net realized loss on foreign currency transactions ....... (503,567)
Change in net unrealized appreciation/depreciation
of investments ......................................... (38,250,142)
Change in net unrealized appreciation/depreciation
of foreign currency transactions ....................... 1,843,664
------------
Net Realized and Unrealized Loss
on Investments and Foreign
Currency Transactions ................. (49,893,877)
--------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............. $10,286,840
========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1999
MAY 31, 1999 (UNAUDITED)
--------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................ $109,304,644 $60,180,717
Net realized loss on investments sold, financial futures
contracts and foreign currency transactions ........................ (40,052,651) (13,487,399)
Change in net unrealized appreciation/depreciation of investments,
financial futures contracts and foreign currency transactions ...... (174,423,486) (36,406,478)
--------------- ---------------
Net Increase (Decrease) in Net Assets Resulting from Operations .... (105,171,493) 10,286,840
--------------- ---------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.7518 and $0.3475 per share, respectively) ............ (28,606,693) (14,887,356)
Class B - ($0.6992 and $0.3230 per share, respectively) ............ (79,060,160) (41,344,046)
Class C - ($0.6985 and $0.3230 per share, respectively) ............ (1,683,288) (1,608,545)
Distributions from net realized gain on investments sold
Class A - ($0.0983 and none per share, respectively) ............... (4,208,715) --
Class B - ($0.0983 and none per share, respectively) ............... (12,355,006) --
Class C - ($0.0983 and none per share, respectively) ............... (435,500) --
--------------- ---------------
Total Distributions to Shareholders ................................ (126,349,362) (57,839,947)
--------------- ---------------
From Fund Share Transactions - Net:* .................................... 306,345,845 14,424,878
--------------- ---------------
Net Assets:
Beginning of period .................................................. 1,074,641,980 1,149,466,970
--------------- ---------------
End of period (including undistributed net investment income
of $2,037,296 and $4,378,066, respectively) ........................ $1,149,466,970 $1,116,338,741
=============== ===============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last two periods, along with
the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1999
MAY 31, 1999 (UNAUDITED)
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold .................................................. 34,649,971 $235,006,979 10,803,688 $67,834,786
Shares issued to shareholders in reinvestment of
distributions ............................................. 2,356,435 15,840,316 1,100,015 7,181,921
------------- ------------- ------------- -------------
37,006,406 250,847,295 11,903,703 75,016,707
Less shares repurchased ...................................... (26,674,634) (182,519,505) (11,585,342) (74,580,245)
------------- ------------- ------------- -------------
Net increase ................................................. 10,331,772 $68,327,790 318,361 $436,462
============= ============= ============= =============
CLASS B
Shares sold .................................................. 61,628,963 $423,033,170 17,002,084 $109,369,592
Shares issued to shareholders in reinvestment of
distributions ............................................. 5,023,895 33,623,357 2,197,914 15,512,280
------------- ------------- ------------- -------------
66,652,858 456,656,527 19,199,998 124,881,872
Less shares repurchased ...................................... (36,105,662) (245,899,556) (18,496,601) (118,800,937)
------------- ------------- ------------- -------------
Net increase ................................................. 30,547,196 $210,756,971 703,397 $6,080,935
============= ============= ============= =============
CLASS C
Shares sold .................................................. 4,721,663 $31,941,073 2,355,173 $14,986,485
Shares issued to shareholders in reinvestment of
distributions ............................................. 163,311 1,077,825 104,169 761,414
------------- ------------- ------------- -------------
4,884,974 33,018,898 2,459,342 15,747,899
Less shares repurchased ...................................... (873,902) (5,757,814) (1,225,991) (7,840,418)
------------- ------------- ------------- -------------
Net increase ................................................. 4,011,072 $27,261,084 1,233,351 $7,907,481
============= ============= ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, PERIOD FROM
---------------------------------------- NOVEMBER 1, 1996 TO
1994 1995(1) 1996 TO MAY 31, 1997(6)
---------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $8.23 $7.33 $7.20 $7.55
---------- ---------- ---------- ----------
Net Investment Income ........................................ 0.80(2) 0.72 0.76(2) 0.45
Net Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts and
Foreign Currency Transactions .............................. (0.83) (0.12) 0.35 0.32
---------- ---------- ---------- ----------
Total from Investment Operations ........................... (0.03) 0.60 1.11 0.77
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ....................... (0.82) (0.73) (0.76) (0.45)
Distributions from Net Realized Gain on Investments Sold ... (0.05) -- -- --
---------- ---------- ---------- ----------
Total Distributions ........................................ (0.87) (0.73) (0.76) (0.45)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ............................... $7.33 $7.20 $7.55 $7.87
========== ========== ========== ==========
Total Investment Return at Net Asset Value (3) ............... (0.59%) 8.83% 16.06% 10.54%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $11,696 $26,452 $52,792 $97,925
Ratio of Expenses to Average Net Assets ...................... 1.16% 1.16% 1.10% 1.05%(5)
Ratio of Net Investment Income to Average Net Assets ......... 10.14% 10.23% 10.31% 10.19%(5)
Portfolio Turnover Rate ...................................... 153% 98% 113% 78%
<CAPTION>
YEAR ENDED MAY 31, SIX MONTHS ENDED
--------------------------- NOVEMBER 30, 1999
1998 1999 (UNAUDITED)
---------- ---------- -----------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $7.87 $8.26 $6.57
---------- ---------- ----------
Net Investment Income ........................................ 0.78(2) 0.75(2) 0.35(2)
Net Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts and
Foreign Currency Transactions .............................. 0.51 (1.59) (0.27)
---------- ---------- ----------
Total from Investment Operations ........................... 1.29 (0.84) 0.08
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ....................... (0.78) (0.75) (0.35)
Distributions from Net Realized Gain on Investments Sold ... (0.12) (0.10) --
---------- ---------- ----------
Total Distributions ........................................ (0.90) (0.85) (0.35)
---------- ---------- ----------
Net Asset Value, End of Period ............................... $8.26 $6.57 $6.30
========== ========== ==========
Total Investment Return at Net Asset Value (3) ............... 17.03% (9.85%) 1.31%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $273,277 $285,184 $275,448
Ratio of Expenses to Average Net Assets ...................... 0.97% 0.98% 0.97%(5)
Ratio of Net Investment Income to Average Net Assets ......... 9.33% 10.94% 11.17%(5)
Portfolio Turnover Rate ...................................... 100% 56% 26%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, PERIOD FROM
------------------------------------------ NOVEMBER 1, 1996 TO
1994 1995(1) 1996 TO MAY 31, 1997(6)
---------- ---------- ---------- -------------------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $8.23 $7.33 $7.20 $7.55
---------- ---------- ---------- ----------
Net Investment Income ....................................... 0.74(2) 0.67 0.70(2) 0.42
Net Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts and
Foreign Currency Transactions ............................. (0.83) (0.13) 0.35 0.32
---------- ---------- ---------- ----------
Total from Investment Operations .......................... (0.09) 0.54 1.05 0.74
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ...................... (0.76) (0.67) (0.70) (0.42)
Distributions from Net Realized Gain on Investments Sold .. (0.05) -- -- --
---------- ---------- ---------- ----------
Total Distributions ....................................... (0.81) (0.67) (0.70) (0.42)
---------- ---------- ---------- ----------
Net Asset Value, End of Period .............................. $7.33 $7.20 $7.55 $7.87
========== ========== ========== ==========
Total Investment Return at Net Asset Value(3) ............... (1.33%) 7.97% 15.24% 10.06%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $160,739 $180,586 $242,944 $379,024
Ratio of Expenses to Average Net Assets ..................... 1.91% 1.89% 1.82% 1.80%(5)
Ratio of Net Investment Income to Average Net Assets ........ 9.39% 9.42% 9.49% 9.45%(5)
Portfolio Turnover Rate ..................................... 153% 98% 113% 78%
<CAPTION>
YEAR ENDED MAY 31, SIX MONTHS ENDED
--------------------------- NOVEMBER 30, 1999
1998 1999 (UNAUDITED)
---------- ---------- -----------------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $7.87 $8.26 $6.57
---------- ---------- ----------
Net Investment Income ....................................... 0.71(2) 0.70(2) 0.32(2)
Net Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts and
Foreign Currency Transactions ............................. 0.51 (1.59) (0.27)
---------- ---------- ----------
Total from Investment Operations .......................... 1.22 (0.89) 0.05
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ...................... (0.71) (0.70) (0.32)
Distributions from Net Realized Gain on Investments Sold .. (0.12) (0.10) --
---------- ---------- ----------
Total Distributions ....................................... (0.83) (0.80) (0.32)
---------- ---------- ----------
Net Asset Value, End of Period .............................. $8.26 $6.57 $6.30
========== ========== ==========
Total Investment Return at Net Asset Value(3) ............... 16.16% (10.54%) 0.92%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $798,170 $835,392 $805,421
Ratio of Expenses to Average Net Assets ..................... 1.72% 1.73% 1.72%(5)
Ratio of Net Investment Income to Average Net Assets ........ 8.62% 10.20% 10.43%(5)
Portfolio Turnover Rate ..................................... 100% 56% 26%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1998
(COMMENCEMENT OF SIX MONTHS ENDED
OPERATIONS) TO YEAR ENDED NOVEMBER 30, 1999
MAY 31, 1998 MAY 31, 1999 (UNAUDITED)
------------- ------------- -------------
<S> <C> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $8.45 $8.26 $6.57
------------- ------------- -------------
Net Investment Income(2) .................................... 0.06 0.70 0.32
Net Realized and Unrealized Loss on Investments, Financial
Futures Contracts and Foreign Currency Transactions ....... (0.19) (1.59) (0.27)
------------- ------------- -------------
Total from Investment Operations .......................... (0.13) (0.89) 0.05
------------- ------------- -------------
Less Distributions:
Dividends from Net Investment Income ...................... (0.06) (0.70) (0.32)
Distributions from Net Realized Gain on Investments Sold .. -- (0.10) --
------------- ------------- -------------
Total Distributions ....................................... (0.06) (0.80) (0.32)
------------- ------------- -------------
Net Asset Value, End of Period .............................. $8.26 $6.57 $6.30
============= ============= =============
Total Investment Return at Net Asset Value(3) ............... (1.59%)(4) (10.54%) 0.92%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $3,195 $28,891 $35,470
Ratio of Expenses to Average Net Assets ..................... 1.72%(5) 1.73% 1.72%(5)
Ratio of Net Investment Income to Average Net Assets ........ 6.70%(5) 10.20% 10.43%(5)
Portfolio Turnover Rate ..................................... 100% 56% 26%
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc., became the investment
adviser of the Fund.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(4) Not annualized.
(5) Annualized.
(6) Effective May 31, 1997, the fiscal period end changed from October 31 to May
31.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Schedule of Investments
November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by High
Yield Bond Fund on November 30, 1999. It's divided into three main categories:
bonds, common and preferred stocks and warrants, and short-term investments. The
bonds are further broken down by industry groups. Under each industry group is a
list of the bonds owned by the Fund. Short-term investments, which represent the
Fund's "cash" position, are listed last.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C>
BONDS
Aerospace (0.24%)
Compass Aerospace Corp.,
Sr Sub Note Ser C 04-15-05 (R) ............................... 10.125% B- $4,475 $2,685,000
-----------
Agricultural Operations (0.24%)
Iowa Select Farms L.P./ISF Finance, Inc.,
Sr Sub Note 12-01-05 (R) ..................................... 10.750 CCC+ 4,990 2,694,600
-----------
Automobile/Trucks (0.97%)
Am General Corp.,
Sr Note Ser B 05-01-02 ....................................... 12.875 B- 1,824 1,641,600
J.B. Poindexter & Co., Inc.,
Sr Note 05-15-04 ............................................. 12.500 B 9,725 9,190,125
-----------
10,831,725
-----------
Banks - United States (0.37%)
CSBI Capital Trust I,
Gtd Sub Cap Inc Ser A 06-06-27 ............................... 11.750 B- 3,890 4,162,300
-----------
Building (1.34%)
Amatek Industries Property Ltd.,
Sr Sub Note (Australia) 02-15-08 (Y) ......................... 12.000 B 4,975 4,676,500
American Architectural Products Corp.,
Gtd Sr Note 12-01-07 ......................................... 11.750 CCC+ 4,000 1,400,000
Fortress Group, Inc.,
Sr Note 05-15-03 ............................................. 13.750 B3 4,000 2,200,000
Nortek, Inc.,
Sr Note 08-01-08 ............................................. 8.875 B+ 1,550 1,480,250
Presley Companies (The),
Gtd Sr Note 07-01-01 ......................................... 12.500 CCC 4,994 4,294,840
Standard Pacific Corp.,
Sr Note 04-01-09 ............................................. 8.500 BB 1,000 915,000
-----------
14,966,590
-----------
Business Services - Misc. (0.48%)
COMFORCE Operating, Inc.,
Sr Note Ser B 12-01-07 ....................................... 12.000 B- 3,000 2,100,000
MSX International, Inc.,
Gtd Sr Sub Note 01-15-08 ..................................... 11.375 B- 3,500 3,255,000
-----------
5,355,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Chemicals (1.70%)
General Chemical Industrial Products, Inc.,
Sr Sub Note 05-01-09 ......................................... 10.625% B+ $1,300 $1,274,000
Huntsman ICI Chemicals LLC,
Sr Sub Note 07-01-09 (R) ..................................... 10.125 B+ 2,900 2,965,250
Huntsman ICI Holdings LLC,
Sr Disc Note 12-31-09 (R) .................................... Zero B+ 18,610 5,443,425
OPP Petroquimica S.A.,
Bond (Brazil) 10-29-04 (R) (Y) ............................... 11.000 B+ 2,000 1,720,000
Trikem S.A.,
Bond (Brazil) 07-24-07 (R) (Y) ............................... 10.625 B+ 12,000 7,620,000
-----------
19,022,675
-----------
Computers (2.75%)
Baan Company, N.V.,
Conv Sub Note (Netherlands) 12-15-01 (Y) ..................... 4.500 B- 3,000 2,550,000
Cybernet Internet Services International, Inc.,
Sr Note 07-01-09 (R) ......................................... 14.000 CCC+ 4,000 3,480,000
ENTEX Information Services, Inc.,
Gtd Sr Sub Note 08-01-06 ..................................... 12.500 B- 2,475 1,361,250
Exodus Communications, Inc.,
Sr Note 07-01-08 ............................................. 11.250 B- 6,425 6,553,500
Interact Systems, Inc.,
Sr Disc Note, Step Coupon (14.00%, 08-01-03) (A) ............. Zero CCC 6,000 1,020,000
PSINet, Inc.,
Sr Note 11-01-08 ............................................. 11.500 B- 4,975 5,174,000
Sr Note 08-01-09 ............................................. 11.000 B- 4,000 4,040,000
Sr Note Ser B 02-15-05 ....................................... 10.000 B- 2,720 2,692,800
Verio, Inc.,
Sr Note 12-01-08 ............................................. 11.250 B- 1,750 1,828,750
Sr Note 11-15-09 (R) ......................................... 10.625 B- 1,950 1,979,250
-----------
30,679,550
-----------
Consumer Products Misc. (0.54%)
Diamond Brands Operating Corp.,
Gtd Sr Sub Note 04-15-08 ..................................... 10.125 CCC+ 5,000 3,850,000
Indesco International, Inc.,
Sr Sub Note 04-15-08 ......................................... 9.750 B- 4,900 2,205,000
-----------
6,055,000
-----------
Containers (3.30%)
Gaylord Container Corp.,
Sr Note Ser B 06-15-07 ....................................... 9.375 B- 2,985 2,768,588
Sr Sub Note Ser B 02-15-08 ................................... 9.875 CCC+ 13,400 11,658,000
Riverwood International Corp.,
Gtd Sr Sub Note 04-01-08 ..................................... 10.875 CCC+ 8,980 8,935,100
Stone Container Corp.,
Unit (Sr Sub Deb & Supplemental Int Cert) 04-01-02 ........... 12.250 B- 13,200 13,464,000
-----------
36,825,688
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Cosmetics & Personal Care (0.59%)
Carson, Inc.,
Gtd Sr Sub Note Ser B 11-01-07 ............................... 10.375% CCC+ $4,435 $3,503,650
Global Health Sciences, Inc.,
Gtd Sr Note 05-01-08 ......................................... 11.000 B+ 3,175 1,841,500
Styling Technology Corp.,
Gtd Sr Sub Note 07-01-08 ..................................... 10.875 CCC- 1,990 1,228,825
-----------
6,573,975
-----------
Diversified Operations (0.71%)
Diamond Holdings Plc,
Gtd Bond (United Kingdom) 02-01-08 # ......................... 10.000 B- 4,950 7,877,240
-----------
Electronics (0.80%)
AMFM Operating, Inc.,
Sr Sub Deb, Payment-in-Kind 10-31-06 ......................... 12.625 B 5,509 6,610,560
Electronic Retailing Systems International, Inc.,
Sr Disc Note, Step Coupon (13.25%, 02-01-00) 02-01-04 (A) .... Zero CCC 1,000 160,000
Pacific Aerospace & Electronics, Inc.,
Gtd Sr Sub Note 08-01-05 ..................................... 11.250 CCC+ 3,135 1,567,500
SpinCycle, Inc.,
Sr Disc Note, Step Coupon (12.75%, 05-01-01) 05-01-05 (A) .... Zero CCC+ 3,850 577,500
-----------
8,915,560
-----------
Energy (2.12%)
AEI Resources, Inc.,
Sr Sub Note 12-15-06 ......................................... 11.500 CC 5,000 3,500,000
AEI Resources, Inc./AEI Resources Holdings, Inc.,
Gtd Note 12-15-05 (R) ........................................ 10.500 CCC- 5,055 3,993,450
P&L Coal Holdings Corp.,
Gtd Sr Sub Note Ser B 05-15-08 ............................... 9.625 B 16,300 16,137,000
-----------
23,630,450
-----------
Fiber Optics (0.74%)
Williams Communications Group, Inc.,
Sr Note 10-01-09 ............................................. 10.875 BB- 7,925 8,281,625
-----------
Finance (0.91%)
ASAT Finance LLC,
Unit (Sr Note & Warrant) 11-01-06 (R) ........................ 12.500 B 3,950 4,108,000
Nationwide Credit, Inc.,
Sr Note Ser A 01-15-08 ....................................... 10.250 B- 4,000 2,280,000
Norse CBO, Ltd.,
Jr Sub Note 08-13-10 (r) ..................................... Zero B- 750 825,000
PTC International Finance II SA,
Gtd Sr Sub Note (Euro) 12-01-09 (R) # ........................ 11.250 B+ 2,975 2,980,402
-----------
10,193,402
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Food (1.73%)
Agrilink Foods, Inc.,
Sr Sub Note 11-01-08 ......................................... 11.875% B $8,425 $8,088,000
Mastellone Hermanos S.A.,
Sr Note (Argentina) 04-01-08 (Y) ............................. 11.750 B+ 13,875 11,238,750
-----------
19,326,750
-----------
Glass Products (0.58%)
Better Minerals & Aggregates Co.,
Sr Sub Note 09-15-09 (R) ..................................... 13.000 B- 1,950 1,925,625
Vicap S.A. de C.V.,
Gtd Sr Note (Mexico) 05-15-07 (Y) ............................ 11.375 B+ 5,000 4,562,500
-----------
6,488,125
-----------
Insurance (0.36%)
SIG Capital Trust I,
Gtd Trust Preferred Security 08-15-27 ........................ 9.500 BB+ 5,000 2,250,000
Willis Corroon Corp.,
Gtd Sr Sub Note 02-01-09 ..................................... 9.000 B+ 2,050 1,711,750
-----------
3,961,750
-----------
Leisure (5.21%)
Claridge Hotel & Casino Corp.,
1st Mtg Note 02-01-02 ........................................ 11.750 D 7,736 4,506,220
Empress Entertainment, Inc.,
Sr Sub Note 07-01-06 ......................................... 8.125 B+ 4,000 4,000,000
Fitzgeralds Gaming Corp.,
Gtd Sr Sec Note Ser B 12-15-04 ............................... 12.250 D 9,450 5,103,000
Hollywood Casino Shreveport,
1st Mtg Bond 08-01-06 (R) .................................... 13.000 B 2,150 2,279,000
Mohegan Tribal Gaming Authority,
Sr Sub Note 01-01-09 ......................................... 8.750 BB- 2,400 2,364,000
Premier Parks, Inc.,
Sr Note 06-15-07 ............................................. 9.750 B- 2,775 2,768,063
Production Resource Group LLC,
Sr Sub Note 01-15-08 ......................................... 11.500 B- 4,475 3,938,000
Regal Cinemas, Inc.,
Sr Sub Note 12-15-10 ......................................... 8.875 B- 3,000 2,250,000
Sr Sub Note 06-01-08 ......................................... 9.500 B- 1,475 1,202,125
SC International Services, Inc.,
Gtd Sr Sub Note Ser B 09-01-07 ............................... 9.250 B 8,600 7,826,000
SFX Entertainment, Inc.,
Gtd Sr Sub Note 02-01-08 ..................................... 9.125 B- 3,900 3,675,750
Gtd Sr Sub Note 12-01-08 ..................................... 9.125 B- 3,500 3,290,000
Six Flags Entertainment Corp.,
Gtd Sr Note 04-01-06 ......................................... 8.875 B- 2,900 2,842,000
Trump Hotels & Casino Resorts Funding, Inc./Holdings, L.P.,
Sr Sec Note 06-15-05 ......................................... 15.500 B- 8,630 7,335,500
William Hill Finance Plc,
Sr Sub Note (United Kingdom) 04-30-08 # ...................... 10.625 B- 2,984 4,784,327
-----------
58,163,985
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Machinery (0.28%)
Glasstech, Inc.,
Sr Note Ser B 07-01-04 ....................................... 12.750% B $4,475 $3,110,125
-----------
Manufacturing (0.69%)
AP Holdings, Inc.,
Sr Disc Note, Step Coupon (11.25%, 03-15-03) 03-15-08 (A) .... Zero B- 1,800 792,000
Coyne International Enterprises Corp.,
Sr Sub Note 06-01-08 ......................................... 11.250 B- 5,925 5,302,875
Icon Health & Fitness, Inc.,
Gtd Note 09-27-05 ............................................ 12.000 B 2,935 1,614,140
-----------
7,709,015
-----------
Media (3.16%)
CD Radio, Inc.,
Sr Disc Note, Step Coupon (15.00%, 12-01-02) 12-01-07 (A) .... Zero CCC+ 2,990 1,450,150
Sr Note 05-15-09 ............................................. 14.500 CCC+ 2,000 1,740,000
Digital Television Services LLC,
Gtd Sr Sub Note 08-01-07 ..................................... 12.500 CCC+ 11,095 11,871,650
Radio One, Inc.,
Sr Sub Note Ser B, Step Coupon (12.00%, 05-15-00)
05-15-04 (A) ............................................... 7.000 B- 3,000 3,157,500
Regional Independent Media Group Plc,
Sr Disc Note, Step Coupon (12.875%, 07-01-03)
(United Kingdom) 07-01-08 (A) (Y) # ........................ Zero B- 3,730 3,808,420
Sr Note (United Kingdom) 07-01-08 (Y) ........................ 10.500 B- 1,170 1,134,900
Spectrasite Holdings, Inc.,
Sr Disc Note, Step Coupon (11.25%, 04-15-04) 04-15-09 (A) .... Zero B- 4,900 2,499,000
Supercanal Holdings S.A./Supercanal S.A.,
Sr Note (Argentina) 05-15-05 (R) (Y) ......................... 11.500 D 3,976 2,047,640
United International Holdings, Inc.,
Sr Disc Note, Step Coupon (10.75%, 02-15-03) 02-15-08 (A) .... Zero B- 11,925 7,512,750
-----------
35,222,010
-----------
Medical (0.37%)
Total Renal Care Holdings, Inc.,
Conv Sub Note 05-15-09 (R) ................................... 7.000 B 6,950 4,170,000
-----------
Metal (4.49%)
ALatief Freeport Finance Co. B.V. (P.T.),
Sr Note 04-15-01 ............................................. 9.750 CCC+ 5,950 5,236,000
Doe Run Resources Corp.,
Gtd Sr Note Ser B 03-15-03 ................................... 12.231*** B- 4,975 4,577,000
Gtd Sr Note Ser B 03-15-05 ................................... 11.250 B- 6,990 6,430,800
Echo Bay Mines Ltd.,
Jr Sub Deb (Canada) 04-01-27 (Y) ............................. 11.000 D 2,000 1,200,000
Freeport-McMoRan Copper & Gold, Inc.,
Sr Note 11-15-06 ............................................. 7.500 CCC 9,925 7,245,250
Golden Northwest Aluminum, Inc.,
1st Mtg Note 12-15-06 ........................................ 12.000 BB- 6,475 6,750,187
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Metal (continued)
Haynes International, Inc.,
Sr Note 09-01-04 ............................................. 11.625% B- $10,000 $8,675,000
Kappa Beheer B.V.,
Sr Sub Note (Netherlands) 07-15-09 (R) (Y) ................... 10.625 B 3,175 3,302,000
Sr Sub Note, Step Coupon (12.50%, 07-15-04)
(Euro) 07-15-09 (A) # ...................................... Zero B 4,400 2,724,536
TVX Gold, Inc.,
Conv Sub Note (Canada) 03-28-02 (Y) .......................... 5.000 B- 5,150 4,017,000
-----------
50,157,773
-----------
Oil & Gas (7.58%)
Comstock Resources, Inc.,
Sr Note 05-01-07 ............................................. 11.250 B 2,475 2,536,875
Frontier Oil Corp.,
Sr Note 11-15-09 ............................................. 11.750 B+ 4,950 4,900,500
Gothic Energy Corp.,
Sr Disc Note, Step Coupon (14.125%, 05-01-02) 05-01-06 (A) ... Zero CCC- 4,990 1,746,500
Gothic Production Corp.,
Sr Sec Note Ser B 05-01-05 ................................... 11.125 CCC+ 3,325 2,793,000
Great Lakes Acquisition Corp.,
Sr Disc Deb, Step Coupon (13.125%, 05-15-03) 05-15-09 (A) .... Zero B- 9,300 4,557,000
HS Resources, Inc.,
Sr Sub Note Ser B 11-15-06 ................................... 9.250 B 4,000 3,940,000
Key Energy Group, Inc.,
Conv Sub Note 09-15-04 (R) ................................... 5.000 B 26,300 18,410,000
Conv Sub Note 09-15-04 ....................................... 5.000 B 10,249 7,174,300
Key Energy Services, Inc.,
Sr Sub Note 01-15-09 (R) ..................................... 14.000 B- 9,900 10,791,000
Mariner Energy, Inc.,
Sr Sub Note Ser B 08-01-06 ................................... 10.500 B- 3,990 3,591,000
Ocean Rig Norway A.S.,
Gtd Sr Sec Note (Norway) 06-01-08 (Y) ........................ 10.250 B- 4,945 4,005,450
PANACO, Inc.,
Gtd Sr Sub Note Ser B 10-01-04 ............................... 10.625 CCC 2,990 2,093,000
Pemex Finance Ltd.,
Note (Mexico) 05-15-07 (Y) ................................... 8.020 BBB 10,000 9,550,000
R&B Falcon Corp.,
Sr Note 12-15-03 ............................................. 9.125 B+ 6,940 6,870,600
Universal Compression, Inc.,
Sr Disc Note, Step Coupon (9.875%, 02-15-03) 02-15-08 (A) .... Zero B 2,740 1,698,800
-----------
84,658,025
-----------
Paper & Paper Products (5.89%)
Advance Agro Capital B.V.,
Gtd Sr Note (Thailand) 11-15-07 (Y) .......................... 13.000 CC 6,950 5,073,500
Alabama River Newsprint Co.,
Note 04-30-00 (r) ............................................ Zero BB 4,935 4,046,735
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Paper & Paper Products (continued)
APP Finance (VII) Mauritius Ltd.,
Gtd Note (Indonesia) 04-30-03 (R) (Y) ........................ 3.500% CCC+ $990 $688,050
APP Finance II Mauritius Ltd.,
Bond (Indonesia) 12-29-49 (Y) ................................ 12.000 Caa 7,500 4,650,000
APP International Finance Co. B.V.,
Gtd Sec Note (Indonesia) 10-01-05 (Y) ........................ 11.750 CCC+ 5,900 4,845,375
Grupo Industrial Durango, S.A.,
Note (Mexico) 08-01-03 (Y) ................................... 12.625 BB- 9,040 8,960,900
Indah Kiat Finance Mauritius Ltd.,
Gtd Sr Note (Indonesia) 07-01-07 (Y) ......................... 10.000 CCC+ 6,000 4,267,500
Indah Kiat International Finance Co.,
Gtd Sec Bond Ser C (Indonesia) 06-15-06 (Y) .................. 12.500 CCC+ 3,500 2,695,000
Packaging Corp. of America,
Sr Sub Note Ser B 04-01-09 ................................... 9.625 B 7,000 7,227,500
Repap New Brunswick, Inc.,
Sr Sec Note (Canada) 04-15-05 (Y) ............................ 10.625 CCC+ 20,000 18,650,000
Sappi BVI Finance Ltd.,
Gtd Conv Bond (South Africa) 08-01-02 (R) (Y) ................ 7.500 BB- 2,060 1,854,000
Tjiwi Kimia Finance Mauritius Ltd.,
Gtd Sr Note (Indonesia) 08-01-04 (Y) ......................... 10.000 BB 1,500 1,087,500
Tjiwi Kimia International Finance Co. B.V.,
Gtd Sr Note (Indonesia) 08-01-01 (Y) ......................... 13.250 CCC+ 2,000 1,780,000
-----------
65,826,060
-----------
Pollution Control (0.43%)
ICF Kaiser International, Inc.,
Sr Note Ser B 12-31-03 ....................................... 12.000 B- 1,000 900,000
Sr Sub Note 12-31-03 ......................................... 12.000 CCC 7,750 3,875,000
-----------
4,775,000
-----------
Printing - Commercial (0.18%)
Sullivan Graphics, Inc.,
Sr Sub Note 08-01-05 ......................................... 12.750 B- 2,000 2,040,000
-----------
Real Estate Operations (0.41%)
Signature Resorts, Inc.,
Conv Sub Note 01-15-07 ....................................... 5.750 B 6,965 4,535,956
-----------
REIT (0.25%)
Host Marriott L.P.,
Gtd Sr Note 02-15-06 ......................................... 8.375 BB 2,975 2,826,250
-----------
Retail (1.62%)
American Restaurant Group, Inc.,
Gtd Sr Sec Note 02-15-03 ..................................... 11.500 B 5,750 4,485,000
Ames Department Stores, Inc.,
Sr Note 04-15-06 (R) ......................................... 10.000 B+ 7,950 7,810,875
Imperial Home Decor Group, Inc.,
Gtd Sr Sub Note 03-15-08 ..................................... 11.000 CCC 4,875 487,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Retail (continued)
Pathmark Stores, Inc.,
Sub Note 06-15-02 ............................................ 11.625% CCC+ $4,670 $4,634,975
RAB Holdings, Inc.,
Sr Note 05-01-08 ............................................. 13.000 CCC 1,380 662,400
-----------
18,080,750
-----------
Steel (3.72%)
Gulf States Steel, Inc. of Alabama,
1st Mtg Bond 04-15-03 ........................................ 13.500 D 17,750 2,130,000
Metallurg Holdings, Inc.,
Sr Disc Note, Step Coupon (12.75%, 07-15-03) 07-15-08 (A) .... Zero CCC+ 11,185 3,579,200
Metallurg, Inc.,
Gtd Sr Note Ser B 12-01-07 ................................... 11.000 B- 4,270 3,843,000
NSM Steel, Inc./NSM Steel Ltd.,
Gtd Sr Sub Mtg Note Ser B 02-01-08 (R) ....................... 12.250 D 10,175 101,750
Oregon Steel CF&I,
Note 03-31-03 (r) ............................................ 9.500 B 5,155 4,999,974
Renco Steel Holdings,
Sr Sec Note Ser B 02-01-05 ................................... 10.875 B- 4,475 3,982,750
Republic Technologies International LLC / RTI Capital Corp.,
Unit (Sr Note & Warrant) 07-15-09 (R) ........................ 13.750 B 8,300 5,810,000
Sheffield Steel Corp.,
1st Mtg Note 12-01-05 ........................................ 11.500 B- 5,625 4,668,750
Weirton Steel Corp.,
Sr Note 07-01-04 ............................................. 11.375 B 10,875 9,760,312
Sr Note 06-01-05 ............................................. 10.750 B 3,000 2,670,000
-----------
41,545,736
-----------
Telecommunications (18.98%)
Advanced Radio Telecom Corp.,
Sr Note 02-15-07 ............................................. 14.000 CCC 2,250 1,935,000
AMSC Acquisition Co., Inc./American Mobile Corp.,
Gtd Sr Note Ser B 04-01-08 ................................... 12.250 B- 9,960 7,918,200
COLT Telecom Group Plc,
Sr Note (Germany) 07-31-08 # ................................. 7.625 B 10,000 5,173,682
Crown Castle International Corp.,
Sr Disc Note, Step Coupon (10.625%, 11-15-02) 11-15-07 (A) ... Zero B 3,940 2,955,000
Sr Note 05-15-11 ............................................. 9.000 B 1,875 1,832,813
CTI Holdings S.A.,
Sr Note, Step Coupon (11.25%, 04-15-03) (Argentina)
04-15-08 (A) (Y) ........................................... Zero B 7,925 4,501,400
Dolphin Telecom Plc,
Sr Disc Note, Step Coupon (11.50%, 06-01-03)
(United Kingdom) 06-01-08 (A) (Y) .......................... Zero B- 8,940 4,067,700
Sr Disc Note, Step Coupon (14.00%, 05-15-04)
(United Kingdom) 05-15-09 (A) (Y) .......................... Zero CCC+ 4,950 2,227,500
Esat Telecom Group Plc,
Sr Note (Euro) 11-01-09 # .................................... 11.875 B+ 2,375 2,582,570
Esprit Telecom Group Plc,
Sr Note (Germany) 06-15-08 # ................................. 11.000 BB- 10,940 5,660,008
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Telecommunications (continued)
FaciliCom International,
Sr Note 01-15-08 ............................................. 10.500% B- $5,350 $4,708,000
Global TeleSystems Group, Inc.,
Sr Note 02-15-05 ............................................. 9.875 B- 2,950 2,714,000
Sr Note (Euro) 12-01-09 (R) .................................. 11.000 B 4,950 5,008,827
GST Equipment Funding, Inc.,
Sr Sec Note 05-01-07 ......................................... 13.250 B- 5,100 5,100,000
Hermes Europe Railtel B.V.,
Sr Note (Netherlands) 01-15-09 (Y) ........................... 10.375 B 1,750 1,723,750
Innova S. de R.L.,
Sr Note (Mexico) 04-01-07 (Y) ................................ 12.875 B- 2,000 1,725,000
International Wireless Communications, Inc.,
Sr Sec Disc Note 08-15-01 .................................... Zero B- 16,450 1,645,000
ITC/\ DeltaCom, Inc.,
Sr Note 11-15-08 ............................................. 9.750 B 2,900 2,921,750
KMC Telecom Holdings, Inc.,
Sr Note 05-15-09 (R) ......................................... 13.500 B- 9,900 9,652,500
Level 3 Communications, Inc.,
Sr Note 05-01-08 ............................................. 9.125 B 4,940 4,668,300
Long Distance International, Inc.,
Sr Note 04-15-08 ............................................. 12.250 B- 1,900 1,026,000
McCaw International Ltd.,
Sr Disc Note, Step Coupon (13.00%, 04-15-02) 04-15-07 (A) .... Zero B- 12,300 8,179,500
McLeodUSA, Inc.,
Sr Disc Note, Step Coupon (10.50%, 03-01-02) 03-01-07 (A) .... Zero B+ 4,310 3,448,000
Sr Note 03-15-08 ............................................. 8.375 B+ 3,940 3,733,150
Metrocall, Inc.,
Sr Sub Note 09-15-08 ......................................... 11.000 CCC+ 4,000 2,440,000
Metromedia Fiber Network, Inc.,
Sr Note 11-15-08 ............................................. 10.000 B+ 1,800 1,818,000
Sr Note 12-15-09 ............................................. 10.000 B+ 4,225 4,283,094
MetroNet Communications Corp.,
Sr Note (Canada) 08-15-07 (Y) ................................ 12.000 BBB 3,225 3,724,875
Nextel Partners, Inc.,
Sr Disc Note, Step Coupon (14.00%, 02-01-04) 02-01-09 (A) .... Zero CCC+ 2,975 1,926,313
NEXTLINK Communications, Inc.,
Sr Note 11-15-08 ............................................. 10.750 B 4,925 5,048,125
NTL, Inc.,
Sr Note 10-01-08 ............................................. 11.500 B- 3,250 3,526,250
Sr Note, Step Coupon (12.375%, 10-01-03) 10-01-08 (A) (R) .... Zero B- 4,400 3,069,000
Omnipoint Corp.,
Sr Note 09-15-09 (R) ......................................... 11.500 CCC+ 1,975 2,133,000
ONO Finance Plc,
Unit (Note & Equity Value Cert) 05-01-09 (R) ................. 13.000 CCC+ 7,150 7,793,500
Pac-West Telecomm, Inc.,
Sr Note 02-01-09 ............................................. 13.500 B 8,450 8,745,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Telecommunications (continued)
Paging Network do Brasil S.A.,
Sr Note (Brazil) 06-06-05 (Y) ................................ 13.500% B- $2,550 $382,500
Primus Telecommunications Group, Inc.,
Sr Note 10-15-09 (R) ......................................... 12.750 B- 5,200 5,226,000
Sr Sec Note 08-01-04 ......................................... 11.750 B- 6,750 6,682,500
Startec Global Communications Corp.,
Sr Note 05-15-08 ............................................. 12.000 CCC 3,000 2,400,000
Telecorp PCS, Inc.,
Sr Sub Disc Note, Step Coupon (11.625%, 04-15-04)
04-15-09 (A) (R) ........................................... Zero B3 5,970 3,850,650
Telewest Communications Plc,
Sr Disc Note, Step Coupon (9.25%, 04-15-04)
(United Kingdom) 04-15-09 (A) (R) # ........................ Zero B+ 5,875 5,904,789
Teligent, Inc.,
Sr Note 12-01-07 ............................................. 11.500 CCC 5,984 5,744,640
United Pan-Europe Communications N.V.,
Sr Disc Note, Step Coupon (13.375%, 11-01-04) (Euro)
11-01-09 (R) # ............................................. Zero B- 5,950 3,339,847
Sr Note (Euro) 11-01-07 (R) # ................................ 10.875 B- 3,950 4,126,197
Sr Note (Euro) 11-01-09 (R) # ................................ 11.250 B- 3,475 3,621,262
VersaTel Telecom International B.V.,
Sr Note (Netherlands) 05-15-08 (Y) ........................... 13.250 B- 5,375 5,643,750
Sr Note (Netherlands) 07-15-09 (Y) ........................... 11.875 B- 1,975 1,999,688
Viatel, Inc.,
Sr Note (Germany) 04-15-08 # ................................. 11.150 B- 4,830 2,461,592
Sr Sec Note 04-15-08 ......................................... 11.250 B- 10,925 10,815,750
WinStar Communications, Inc.,
Sr Sub Def Note 03-01-07 ..................................... 15.000 CCC 2,000 2,460,000
Sr Sub Def Note 03-15-08 ..................................... 11.000 CCC 2,966 2,699,060
Worldwide Fiber, Inc.,
Sr Note (Canada) 12-15-05 (Y) ................................ 12.500 B+ 4,700 4,876,250
-----------
211,850,032
-----------
Textile (1.02%)
Polymer Group, Inc.,
Gtd Sr Sub Note 03-01-08 ..................................... 8.750 B 4,535 4,330,925
Steel Heddle Group, Inc.,
Sr Disc Deb, Step Coupon (13.75%, 06-01-03) 06-01-09 (A) ..... Zero CCC+ 4,700 611,000
Steel Heddle Manufacturing Co.,
Gtd Sr Sub Note Ser B 06-01-08 ............................... 10.625 CCC+ 5,950 2,380,000
Tropical Sportswear International Corp.,
Gtd Sr Sub Note Ser A 06-15-08 ............................... 11.000 B- 4,350 3,958,500
Willcox & Gibbs, Inc.,
Gtd Sr Note Ser B 12-15-03 ................................... 12.250 Caa3 5,000 50,000
-----------
11,330,425
-----------
Transportation (5.38%)
Cenargo International Plc,
1st Mtg Note (United Kingdom) 06-15-08 (Y) ................... 9.750 B+ 3,980 3,223,800
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST CREDIT (000s MARKET
ISSUER, DESCRIPTION RATE RATING* OMITTED) VALUE
- ------------------- ---------- -------- ------------ --------
<S> <C> <C> <C> <C>
Transportation (continued)
Continental Airlines, Inc.,
Note 12-15-05 ................................................ 8.000% BB- $8,475 $7,775,812
Dunlop Standard Aerospace Holdings Plc,
Sr Note (United Kingdom) 05-15-09 (Y) ........................ 11.875 B- 1,000 1,020,000
Fine Air Services, Inc.,
Gtd Sr Note 06-01-08 ......................................... 9.875 B 7,900 6,715,000
MRS Logistica S.A.,
Bond Ser B (Brazil) 08-15-05 (R) (Y) ......................... 10.625 B 6,000 4,740,000
Navigator Gas Transport Plc,
Unit (Mtg Note & Warrants) (United Kingdom)
06-30-07 (R) (Y) ........................................... 12.000 B 3,000 270,000
North American Van Lines, Inc.,
Sr Sub Note 12-01-09 (R) ..................................... 13.375 B3 6,225 6,240,562
Northwest Airlines Corp.,
Gtd Note 03-15-07 ............................................ 8.700 BB 7,900 7,400,720
Pacer International, Inc.,
Sr Sub Note 06-01-07 (R) ..................................... 11.750 B- 4,950 5,024,250
Pacific & Atlantic Holdings, Inc.,
1st Mtg Note (Greece) 05-30-08 (Y) ........................... 11.500 CC 2,950 1,121,000
Ultralpetrol (Bahamas) Ltd.,
1st Mtg Pfd Ship Note 04-01-08 ............................... 10.500 BB- 2,150 1,763,000
U.S. Airways Group, Inc.,
Sr Note 02-01-01 ............................................. 9.625 B 4,925 4,907,024
Gtd Pass Thru Ctf Ser 1993-A3 03-01-13 ....................... 10.375 BB 4,950 4,723,686
World Airways, Inc.,
Sub Deb 08-26-04 (R) ......................................... 8.000 B- 2,000 300,000
Worldwide Flight Services, Inc.,
Unit (Sr Note & Warrant) 08-15-07 (R) ........................ 12.250 B 4,950 4,851,000
-----------
60,075,854
-----------
Waste Disposal Service & Equip. (1.38%)
Allied Waste North America, Inc.,
Sr Sub Note 08-01-09 (R) ..................................... 10.000 B+ 7,000 6,370,000
Waste Systems International, Inc.,
Gtd Sr Note 01-15-06 (R) ..................................... 11.500 B 1,985 1,865,900
Sub Note 05-13-05 (R) ........................................ 7.000 CCC+ 9,007 7,115,846
-----------
15,351,746
-----------
TOTAL BONDS
(Cost $1,084,667,516) (81.51%) 909,955,747
------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
NUMBER OF
SHARES MARKET
ISSUER, DESCRIPTION OR WARRANTS VALUE
- ------------------- ------------- --------
<S> <C> <C>
COMMON AND PREFERRED STOCKS AND WARRANTS
Abitibi-Consolidated, Inc., Common Stock (Canada) ............................... 1,233,500 $12,797,562
American Mobile Satellite Corp., Warrant (R) ** ................................. 9,960 --
American Pacific Corp., Common Stock ** ......................................... 175,500 1,283,344
American Telecasting, Inc., Warrant ** .......................................... 2,000 20
Capstar Broadcasting Partners, 12.00%, Payment-In-Kind, Preferred Stock ......... 8,365 978,705
CD Radio, Inc., 10.50%, Ser C, Preferred Stock .................................. 19,800 3,069,000
CD Radio, Inc., Warrant (R) ** .................................................. 6,000 319,980
Continental Airlines, Inc. (Class B), Common Stock ** ........................... 99,200 3,670,400
Contour Energy Co., $2.625, Preferred Stock ..................................... 125,000 406,250
CORE Cap, Inc. (Class A), Common Stock (r) ...................................... 67,000 1,085,400
CORE Cap, Inc., Ser A/I, 10.00%, Preferred Stock (r) ............................ 67,000 1,603,980
Crown Castle International Corp., 12.75%, Preferred Stock ....................... 5,492 5,739,140
Cumulus Media, Inc., 13.75%, Ser A, Preferred Stock ............................. 4,083 4,450,470
Cybernet Internet Services International, Inc., Warrant ** ...................... 4,000 320,000
Decorative Home Accents, Inc., Common Stock ** .................................. 1,000 1
e.spire Communications, Inc., 12.75%, Payment-In-Kind, Preferred Stock .......... 638 108,460
Electronic Retailing Systems International, Inc., Warrant ** .................... 1,000 1,000
Farm Fresh Holdings Corp. (Class B), Common Stock ** ............................ 1,000 10
Fitzgeralds Gaming Corp., Preferred Stock ....................................... 125,000 218,750
Fitzgeralds Gaming Corp., Common Stock ** ....................................... 156,752 78,376
Fuji JGB Investment LLC, 9.87%, Ser A, Preferred Stock (Japan) (R) (Y) .......... 7,940 8,027,340
Gaylord Container Corp. (Class A), Common Stock ** .............................. 1,090,200 6,813,750
Geneva Steel Co., 14.00%, Ser B, Preferred Stock ................................ 10,000 1,000
Glasstech, Inc., Warrant ** ..................................................... 2,000 1,000
Gothic Energy Corp., Warrant ** ................................................. 39,586 --
Granite Broadcasting Corp., 12.75%, Payment-In-Kind, Preferred Stock ............ 8,598 8,598,000
Great Atlantic & Pacific Tea Co., Inc., Common Stock ............................ 169,800 4,319,287
Grey Wolf, Inc., Common Stock ** ................................................ 3,000,000 8,250,000
Harvard Industries, Inc., Common Stock ** ....................................... 230,210 1,985,561
Haynes Holdings, Inc., Common Stock ** .......................................... 67,938 254,768
HF Holdings, Inc., Warrant ** ................................................... 28,092 42,138
Hills Stores Co., Warrant ** .................................................... 10,482,000 --
ICF Kaiser International, Inc., Warrant (Expires 12-31-99) ** ................... 7,000 3,500
Interact Systems, Inc., Warrant ** .............................................. 6,000 300
International Wireless, Inc., Warrant ** ........................................ 1,500 15
Ithaca Industries, Inc., Common Stock ** ........................................ 235,000 66,106
Key Energy Group, Inc., Common Stock ** ......................................... 2,975,000 14,875,000
Key Energy Services, Inc., Warrant (R) ** ....................................... 9,900 247,500
KLM Royal Dutch Airlines N.V., Common Stock (Netherlands) # ..................... 107,625 2,677,172
Long Distance International, Inc., Warrant ** ................................... 1,900 2,375
McCaw International Ltd., Warrant ** ............................................ 10,050 25,125
Nakornthai Strip Mill Plc, Warrant (Thailand) (R) (Y) ** ........................ 9,591,354 9,591
Nextel Communications, Inc., 13.00%, Payment-In-Kind, Ser D, Preferred Stock .... 21,287 22,777,090
Northwest Airlines Corp. (Class A), Common Stock ** ............................. 725,000 16,992,187
ONO Finance Plc, Warrant (United Kingdom) (R) ** ................................ 7,150 50,050
Packaging Corp. of America, 12.375%, Payment-In-Kind, Preferred Stock ........... 49,730 5,420,570
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
<TABLE>
<CAPTION>
NUMBER OF
SHARES MARKET
ISSUER, DESCRIPTION OR WARRANTS VALUE
- ------------------- ------------- --------
<S> <C> <C>
COMMON AND PREFERRED STOCKS AND WARRANTS (continued)
Paging do Brazil Holding Co. LLC (Class B), Common Stock (R) ** ................. 2,550 --
R&B Falcon Corp., Warrant (R) ** ................................................ 6,950 $1,737,500
R&B Falcon Corp., 13.875%, Unit (Preferred Stock & Warrant) ..................... 7,465 7,763,600
Repap Enterprises, Inc., Common Stock (Canada) # ** ............................. 2,000,000 108,600
Samuels Jewelers, Inc., Common Stock ** ......................................... 300,000 2,100,000
Samuels Jewelers, Inc., Warrant ** .............................................. 2,612 26
Sheffield Steel Corp., Common Stock ** .......................................... 500 1,000
SpinCycle, Inc., Warrant (R) ** ................................................. 3,850 39
Star Gas Partners, L.P., Common Stock ........................................... 102,203 1,520,270
Startec Global Communications Corp., Warrant ** ................................. 3,000 3,000
Sterling Chemicals Holdings, Warrant ** ......................................... 1,000 16,000
Stone Container Corp., $1.75, Ser E, Preferred Stock ............................ 462,400 9,652,600
Supermarkets General Holding Corp., $3.52, Preferred Stock ...................... 71,964 2,230,884
Teletrac, Inc., Warrant ** ...................................................... 3,500 --
VersaTel Telecom B.V., Warrant (R) ** ........................................... 5,375 1,558,750
Viatel, Inc., Common Stock ** ................................................... 19,029 799,218
Waste Systems International, Inc., Common Stock ** .............................. 800,000 3,600,000
Waste Systems International, Inc., Warrant (R) ** ............................... 29,775 22,331
Westshore Terminals Income Fund, Common Stock (Canada) # ........................ 160,000 608,240
----------
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS
(Cost $192,513,144) (15.17%) 169,292,331
------- --------------
<CAPTION>
<S> <C> <C>
SHORT-TERM INVESTMENTS
Corporate Savings Account (0.16%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.50%............................................................. 1,825,887
--------------
TOTAL SHORT-TERM INVESTMENTS (0.16%) 1,825,887
------- --------------
TOTAL INVESTMENTS (96.84%) 1,081,073,965
------- --------------
OTHER ASSETS AND LIABILITIES, NET (3.16%) 35,264,776
------- --------------
TOTAL NETASSETS (100.00%) $1,116,338,741
======= ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
NOTES TO THE SCHEDULE OF INVESTMENTS
* Credit ratings are unaudited and rated by Moody's Investors Service or
John Hancock Advisers, Inc. where Standard and Poor's ratings are not
available.
** Non-income producing security.
*** Represents rate in effect on November 30, 1999.
# Par value of foreign bonds and common stocks is expressed in local
currency, as shown parenthetically in security description.
(A) Cash interest will be paid on this obligation at the stated rate beginning
on the stated date.
(R) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $201,335,528 or 18.04% of net assets as
of November 30, 1999.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, security is U.S. dollar
denominated.
(r) Direct placement securities are restricted as to resale. They have been
valued in accordance with procedures approved by the Trustees after
consideration of restrictions as to resale, financial condition and
prospects of the issuer, general market conditions and pertinent
information in accordance with the Fund's By-Laws and the Investment
Company Act of 1940, as amended. The Fund has limited rights to
registration under the Securities Act of 1933 with respect to these
restricted securities.
Additional information on these securities is as follows:
<TABLE>
<CAPTION>
MARKET
VALUE AS A
PERCENTAGE MARKET
ACQUISITION ACQUISITION OF FUND'S VALUE AT
ISSUER, DESCRIPTION DATE COST NET ASSETS NOVEMBER 30, 1999
------------------- ----------- ----------- ---------- -----------------
<S> <C> <C> <C> <C>
Alabama River Newsprint Co. ................................... 04-14-98 $4,330,317 0.36% $4,046,735
CORE Cap, Inc. (Class A), Common Stock......................... 10-31-97 1,340,000 0.10 1,085,400
CORE Cap, Inc., Ser A/I, 10.00%, Preferred Stock............... 10-31-98 1,675,000 0.14 1,603,980
Norse CBO, Ltd................................................. 08-04-98 750,000 0.07 825,000
Oregon Steel CF&I.............................................. 05-14-98 4,993,840 0.45 4,999,974
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - High Yield Bond Fund
Portfolio Concentration
November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The High Yield Bond Fund invests primarily in securities issued in the United
States of America. The performance of this Fund is closely tied to the economic
and financial conditions within the countries in which it invests. The
concentration of investments by industry category for individual securities held
by the Fund is shown in the schedule of investments.
In addition, concentration of investments can be aggregated by various
countries. The table below shows the percentages of the Fund's investments at
November 30, 1999, assigned to country categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
- ----------------------- ---------------
Argentina................................................... 1.59%
Australia................................................... 0.42
Brazil...................................................... 1.30
Canada...................................................... 4.12
Finland..................................................... 0.24
Greece...................................................... 0.10
Indonesia................................................... 1.79
Ireland..................................................... 0.23
Japan....................................................... 0.72
Luxembourg.................................................. 0.27
Mexico...................................................... 1.37
Netherlands................................................. 2.60
Norway...................................................... 0.36
South Africa................................................ 0.17
Thailand.................................................... 0.46
United Kingdom.............................................. 4.72
United States............................................... 76.38
------
TOTAL INVESTMENTS 96.84%
======
Additionally, the concentration of investments can be aggregated by the quality
rating for each debt security.
QUALITY DISTRIBUTION
- --------------------
BBB......................................................... 1.19%
BB.......................................................... 5.97
B........................................................... 56.43
CCC......................................................... 15.70
CC.......................................................... 0.87
D........................................................... 1.35
------
TOTAL BONDS 81.51%
======
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Bond Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Bond Trust (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of three series: John Hancock High Yield Bond Fund (the "Fund"), John Hancock
Intermediate Government Fund and John Hancock Government Income Fund
(collectively, the "Funds"). The other two series of the Trust are reported in
separate financial statements. The investment objective of the Fund is to
maximize current income without assuming undue risk by investing in a
diversified portfolio consisting primarily of lower-rated, high-yielding debt
securities such as: domestic and foreign corporate bonds; debentures and notes;
convertible securities; preferred stocks; and domestic and foreign government
obligations. As a secondary objective, the Fund seeks capital appreciation, but
only when it is consistent with the primary objective of maximizing current
income.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B and Class C shares. The shares of each
class represent an interest in the same portfolio of investments of the Fund and
have equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Board of Trustees. Short-term debt investments maturing within
60 days are valued at amortized cost, which approximates market value. All
portfolio transactions initially expressed in terms of foreign currencies have
been translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement. Aggregate cash balances
are invested in one or more repurchase agreements, whose underlying securities
are obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $21,790,325 of capital loss
carryforwards available, to the extent provided by regulations, to offset future
net realized capital gains. To the extent that such carryforwards are used by
the Fund, no capital gain distributions will be made. The carryforwards expire
May 31, 2007. Additionally, net capital losses of $16,464,424 attributable to
security transactions incurred after October 31, 1998 are treated as arising on
the first day (June 1, 1999) of the Fund's next taxable year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes, which are accrued as applicable.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles.
29
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Bond Fund
Dividends paid by the Fund with respect to each class of shares will be
calculated in the same manner, at the same time and will be in the same amount,
except for the effect of expenses that may be applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or date of purchase over the life of the security,
as required by the Internal Revenue Code.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund entered into a
syndicated line of credit agreement with various banks that enables the Fund to
participate with other funds managed by the Adviser in an unsecured line of
credit with banks which permit borrowings up to $500 million, collectively.
Interest is charged to each fund, based on its borrowing. In addition, a
commitment fee based on the average daily unused portion of the line of credit
is allocated among the participating funds. The Fund had no borrowing activity
for the period ended November 30, 1999.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative and/or to hedge against the effects of fluctuations in
interest rates and other market conditions. Buying futures tends to increase the
Fund's exposure to the underlying instrument. Selling futures tends to decrease
the Fund's exposure to the underlying instrument or hedge other Fund
instruments. At the time the Fund enters into a financial futures contract, it
will be required to deposit with its custodian a specified amount of cash or
U.S. government securities, known as "initial margin," equal to a certain
percentage of the value of the financial future contract being traded. Each day,
the futures contract is valued at the official settlement price of the board of
trade or U.S. commodities exchange on which it trades. Subsequent payments to
and from the broker, known as "variation margin," are made on a daily basis as
the market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market," are recorded by the Fund
as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contract may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuations imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures transactions.
At November 30, 1999, there were no open positions in financial futures
contracts.
OPTIONS Listed options are valued at the last quoted sales price on the exchange
on which they are primarily traded. Over-the-counter options are valued at the
mean between the last bid and asked prices. Upon the writing of a call or put
option, an amount equal to the premium received by the Fund is included in the
Statement of Assets and Liabilities as an asset and corresponding liability. The
amount of the liability is subsequently marked to market to reflect the current
market value of the written option.
The Fund may use option contracts to manage its exposure to the stock market.
Writing puts and buying calls tend to increase the Fund's
30
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Bond Fund
exposure to the underlying instrument and buying puts and writing calls tend to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value reflects the maximum exposure of
the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms ("credit risk"), or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in highly unusual market conditions. To minimize
credit risk and liquidity risks in over-the-counter option contracts, the Fund
will continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
At November 30, 1999, there were no written option transactions.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 P.M., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts for speculative purposes and/or as a hedge
against the effect of fluctuations in currency exchange rates. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
currency at a future date at a set price. The aggregate principal amounts of the
contracts are marked to market daily at the applicable foreign currency exchange
rates. Any resulting unrealized gains and losses are included in the
determination of the Fund's daily net assets. The Fund records realized gains
and losses at the time the forward foreign currency contract is closed out or
offset by a matching contract. Risks may arise upon entering these contracts
from potential inability of counterparties to meet the terms of the contract and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk if they are offset by the currency amount of the underlying
transaction.
31
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Bond Fund
Open forward foreign currency buy and sell contracts at November 30, 1999,
were as follows:
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY COVERED BY CONTRACT MONTH (DEPRECIATION)
- -------- ------------------- ----- --------------
BUYS
Canadian Dollar 771,492 DEC 99 $11,170
Euro Currency 6,660,237 DEC 99 (485,307)
-----------
($474,137)
===========
SELLS
British Pound Sterling 5,885,441 JAN 00 $211,770
British Pound Sterling 17,184,362 FEB 00 532,812
Canadian Dollar 773,484 DEC 99 (9,178)
Canadian Dollar 3,791,500 MAR 00 (11,625)
Euro Currency 6,427,061 DEC 99 252,132
Euro Currency 5,339,856 JAN 00 362,219
Euro Currency 19,754,232 FEB 00 1,124,696
Euro Currency 8,456,328 MAR 00 225,901
Euro Currency 6,382,895 MAR 00 465,897
-----------
$3,154,624
===========
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.625% of the first $75,000,000 of the Fund's
average daily net asset value, (b) 0.5625% of the next $75,000,000 and (c) 0.50%
of the Fund's average daily net asset value in excess of $150,000,000.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended November
30, 1999, net sales charges received with regard to sales of Class A shares
amounted to $211,477. Out of this amount, $41,487 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $82,801
was paid as sales commissions to unrelated broker-dealers and $87,189 was paid
as sales commissions to sales personnel of Signator Investors, Inc. ("Signator
Investors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Signator Investors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended November 30,
1999, contingent deferred sales charges paid to JH Funds amounted to $1,533,459.
Class C shares which are redeemed within one year of purchase will be subject
to a CDSC at a rate of 1.0% of the lesser of the current market value at the
time of redemption or the original purchase cost of the shares being redeemed.
Proceeds from the CDSC are paid to JH Funds and are used in whole or in part to
defray its expenses related to providing distribution related services to the
Fund in connection with the sale of Class C shares. For the period ended
November 30, 1999, contingent deferred sales charges paid to JH Funds amounted
to $15,228.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A, Class B and Class C pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses, at an annual rate not to exceed
0.25% of Class A average daily net assets and 1.00% of Class B and Class C
average daily net assets, to reimburse JH Funds for its distribution and service
costs. A maximum of 0.25% of such payments may be service fees as defined by the
Conduct Rules of the National Association of Securities Dealers. Under the
Conduct Rules, curtailment of a portion of the Fund's 12b-1 payments could occur
under certain circumstances.
32
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - High Yield Bond Fund
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford, Ms. Anne C. Hodsdon and Mr.
Richard S. Scipione are trustees and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Fund. The compensation of unaffiliated
Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for
tax purposes their receipt of this compensation under the John Hancock Group of
Funds Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation liability
are recorded on the Fund's books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to market
on a periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. The investment had no impact on the operations
of the Fund.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of securities, other than
obligations of the U.S. government and its agencies and short-term securities,
during the period ended November 30, 1999, aggregated $282,397,357 and
$276,088,290, respectively. There were no purchases or sales of obligations of
the U.S. government and its agencies during the period ended November 30, 1999.
The cost of investments owned at November 30, 1999 for federal income tax
purposes was $1,278,118,198. Gross unrealized appreciation and depreciation of
investments aggregated $27,065,403 and $225,935,523, respectively, resulting in
net unrealized depreciation of $198,870,120.
33
<PAGE>
======================================NOTES=====================================
John Hancock Funds - High Yield Bond Fund
34
<PAGE>
======================================NOTES=====================================
John Hancock Funds - High Yield Bond Fund
35
<PAGE>
================================================================================
---------------
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 PAID
1-800-225-5291 1-800-554-6713 (TDD) Randolph, MA
INTERNET: www.jhfunds.com Permit No. 75
---------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock High
Yield Bond Fund. It may be used as sales literature when preceded or accompanied
by the current prospectus, which details charges, investment objectives and
operating policies.
[RECYCLE LOGO] Printed on Recycled Paper 570SA 11/99
1/00
<PAGE>
----------------------------
The latest report from your
Fund's management team
----------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[PHOTO]
Government
Income Fund
NOVEMBER 30, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
------------------------------------------
TRUSTEES
STEPHEN L. BROWN
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R. DION*
MAUREEN R. FORD
ANNE C. HODSDON
CHARLES L. LADNER
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)
JOHN P. TOOLAN
*Members of the Audit Committee
OFFICERS
STEPHEN L. BROWN
Chairman
MAUREEN R. FORD
Vice Chairman and Chief Executive Officer
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Executive Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Vice President and Compliance Officer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
------------------------------------------
===================================CEO CORNER===================================
DEAR FELLOW SHAREHOLDERS:
I am delighted that one of my first official duties at John Hancock Funds is to
welcome you to the New Millennium! I wish you all the best for a century filled
with momentous occasions.
Every New Year, of course, provides us with a built-in opportunity to make new
resolutions, or re-commit to old ones. It seems fitting, therefore, that this
special New Year 2000 coincides with a very important, although certainly less
exotic, event.
Starting last October, personalized Social Security statements are being sent to
125 million workers over age 25, showing estimates of the retirement, disability
and survivor benefits that they and their families are eligible to receive now
and in the future.
The statements, to be sent out annually, will provide people with a glimpse of
what they can expect from the government when they retire. This should be
comforting to those who feared that Social Security wouldn't be there for them
at all. But many people also already know that government benefits will only
fulfill a small piece of their retirement needs.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush right next to fourth paragraph.]
- --------------------------------------------------------------------------------
The best thing about this massive mailing is that it can serve as a wake-up call
to encourage families to focus more on planning for their financial future.
When you receive your statement, expected to be within three months of your next
birthday, we urge you to read it carefully for accuracy, making sure your annual
earnings history and amounts you have contributed over the years are correct.
Keep in mind that the estimated benefits are precisely that, and that rules and
regulations may change by the time you retire. Also remember that they are not
inflation adjusted, so it would be unrealistic to expect them to have the same
purchasing power in the future as they would today.
We also encourage you to use this mailing as a reason to contact your investment
professional, or to select one if you are not working with somebody. He or she
can help you focus on establishing and maintaining a sound plan to achieve a
comfortable retirement. Together, you should make sure to maximize your
participation in tax-advantaged programs like IRAs and 401(k)s.
The stakes are too high to leave your retirement lifestyle to chance. Congress'
awareness-raising effort is commendable. The next step is yours. Mark the
beginning of the New Millennium by taking it.
Sincerely,
/s/ Maureen R. Ford
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY BARRY H. EVANS, CFA, AND DAWN BAILLIE, PORTFOLIO MANAGERS
John Hancock
Government Income Fund
Inflation fears and rising interest rates hamper bond market
The bond market was volatile in the second half of 1999, as investors reacted to
growing inflation concerns and anticipated that the Federal Reserve's response
would be to raise short-term interest rates. Both were cause for worry --
inflation because it erodes the value of the fixed interest earned on bond
investments and rising interest rates because they mean falling bond prices. The
Federal Reserve ended up boosting interest rates three times between June and
November for a total increase of three-quarters of a percentage point. Bond
yields also climbed higher, with the yield on the 30-year Treasury moving from a
low of 5.82% at the end of May to a high of 6.38% in late October. By the end of
November, the 30-year yield stood at 6.29%.
Inflation fears stemmed initially from the economy's strong growth, which
continued unabated throughout the second half. In addition, unemployment reached
4.1%, its lowest level in 30 years, increasing wage pressures. Commodity prices,
especially oil, strengthened. And economies in both Asia and Europe began to
pick up, removing the deflationary effect that had helped keep U.S. economic
growth somewhat in check in recent years. As economies in emerging markets began
improving, the flight to quality that had propelled so many investors into U.S.
Treasuries came to an end. In the face of rising interest rates, investors
favored bonds with a yield advantage over Treasuries, including both mortgage
"The Federal Reserve ended up boosting interest rates three times..."
- --------------------------------------------------------------------------------
[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock Government
Income Fund. Caption below reads "Portfolio managers (l-r): Barry Evans and Dawn
Baillie."]
- --------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - Government Income Fund
"As interest rates rose, we cut back on 30-year Treasuries."
- --------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into four sections (from top to left): Short-Term Investments &
Other 5%, Foreign Government Bonds 6%, U.S. Treasuries 11% and U.S. Agencies
78%. A note below the chart reads "As a percentage of net assets on November 30,
1999."]
- --------------------------------------------------------------------------------
bonds and U.S. government agencies. For the six months ended November 30, 1999,
the Lehman Brothers Mortgage-Backed Securities Fixed-Rate Index returned 1.21%,
ahead of the Lehman Brothers Treasury Index's 0.40% return.
Performance review
Fortunately, John Hancock Government Income Fund had a high stake in bonds with
a yield advantage over Treasuries, known as spread products. For the six months
ended November 30, 1999, the Fund's Class A, Class B and Class C shares returned
0.10%, -0.26%, and -0.28%, respectively, at net asset value. By comparison, the
average general U.S. government income fund returned -0.25% over the same
period, according to Lipper, Inc.1 Keep in mind that your net asset value return
will be different from the Fund's performance if you were not invested in the
Fund for the entire period and did not reinvest all distributions. For
longer-term performance information, please see pages six and seven.
Higher spread stake
By the end of November, the Fund had 78% of its net assets in spread products,
including mortgages issued by U.S. government agencies and U.S. government
agencies themselves. In the mortgage sector, which totaled about 63% of net
assets, we made few changes. We had already added substantially to our mortgage
stake in late 1998 and early 1999 when prices were cheap. At the time, we had
bought mostly GNMAs with current coupons (or stated interest rates) of 6% or
6.5% because they offered the least prepayment risk -- the risk that homeowners
would pay off their mortgages early. In addition, we continued to hold on to our
12% stake in collateralized mortgages (CMOs) -- bonds that separate the cash
flows of mortgage pools into various classes with different maturities. By
contrast, we boosted our investment in non-mortgage U.S. government agencies to
15% of net assets, up from 10% six months earlier. We bought both callable and
non-callable agencies with five- and ten-year maturities. We favored callables
- -- bonds that the issuer can call or redeem before maturity -- because of their
slight yield advantage over non-callables.
Lower interest rate risk
As interest rates rose, we cut back on 30-year Treasuries. We did this because
the Treasury sector is especially sensitive to changes in interest rates. We
also knew that rising interest rates would make long maturity bonds less
attractive. That left us with some 20-year Treasuries, as well as some
intermediate-term callable Treasuries. By trimming long-term Treasuries, we were
able to cut the Fund's duration -- a measure of how sensitive the Fund is to
changes in interest rates -- from 5.3 years to 5.1 years. The shorter a bond's
duration, the less its price will fall as interest rates rise -- or rise as
interest rates fall. The Fund's duration, however, was still slightly longer
than average, which hindered performance.
4
<PAGE>
================================================================================
John Hancock Funds - Government Income Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended November 30, 1999." The
chart is scaled in increments of 1% with -1% at the bottom and 1% at the top.
The first bar represents the 0.10% total return for John Hancock Government
Income Fund Class A. The second bar represents the -0.26% total return for John
Hancock Government Income Fund Class B. The third bar represents the -0.28%
total return for John Hancock Government Income Fund Class C. The fourth bar
represents the -0.25% total return for Average general U.S. government income
fund. A note below the chart reads "Total returns for John Hancock Government
Income Fund are at net asset value with all distributions reinvested. The
average general U.S. government income fund is tracked by Lipper, Inc. See the
following two pages for historical performance information
- --------------------------------------------------------------------------------
More interest rate hikes
We expect the recent interest-rate hikes to slow the economy modestly, but not
enough to eliminate inflation concerns. As a result, we believe there will be
more interest-rate increases in the new year. The Federal Reserve used to be
able to raise interest rates and slow the economy. But consumption is now a main
driver of the economy, led primarily by the wealth accumulated through the stock
market and retirement plans. The four-month trailing gross domestic product
number -- a measure of economic growth -- has remained around 4.3% for a while
now. Forecasts are that fourth quarter GDP may come in even higher, given the
strong start to holiday spending.
We expect the bond market to remain volatile, given inflation fears and
the uncertainty surrounding the Fed's next move. The bond market is fear-driven,
not reality-driven. The reality is that the Fed interest-rate hikes are keeping
inflation under control, which is positive for long-term bond investors. Our
strategy in this rising-rate environment will be to continue to maintain a high
stake in spread products. We may make some adjustments in what we own,
exchanging some of our current mortgage bonds for ones with slightly higher
coupons. We also plan to keep a neutral or average duration, currently around
5.0 years. Finally, we're taking a long-term view, believing that the pain
caused by the Fed's decisions today could eventually result in gains for bond
holders who stay the course.
"...the Fed's decisions today could eventually result in gains for bond holders
who stay the course."
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
(1) Figures from Lipper, Inc. include reinvested dividends and do not take into
account sales charges. Actual load-adjusted performance is lower.
5
<PAGE>
================================================================================
John Hancock Funds - Government Income Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Government Income Fund. Total return measures
the change in value of an investment from the beginning to the end of a period,
assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 4.5%. Prior to May 15, 1995, the maximum applicable sales charge for
Class A shares was 4.75%. Class B performance reflects a maximum contingent
deferred sales charge (maximum 5% and declining to 0% over six years). Class C
performance includes a contingent deferred sales charge (1% declining to 0%
after one year).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (9/30/94)
---------- ---------- -------------
Cumulative Total Returns (6.60%) 34.61% 34.64%
Average Annual Total Returns(1) (6.60%) 6.13% 6.13%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
ONE FIVE TEN
YEAR YEARS YEARS
---------- ---------- -----------
Cumulative Total Returns (7.48%) 34.05% 87.14%
Average Annual Total Returns(1) (7.48%) 6.04% 6.47%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
INCEPTION
(4/1/99)
--------------
Cumulative Total Return (2.01%)
Average Annual Total Return(1) (2.01%)(2)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of November 30, 1999
SEC 30-DAY
YIELD
----------------
John Hancock Government Income Fund: Class A 5.48%
John Hancock Government Income Fund: Class B 4.98%
John Hancock Government Income Fund: Class C 4.97%
Notes to Performance
(1) Effective December 4, 1998, the Adviser agreed to limit the Fund's
management fee to 0.50% of the Fund's daily net assets. Without the
limitation of expenses, the average annual total return for the one-year
period, five-year period and since inception would have been (6.67%), 6.11%
and 6.11%, respectively, for Class A shares. The average annual total return
for the one-year period, five-year period and ten-year period would have
been (7.55%), 6.02% and 6.45%, respectively, for Class B shares. The average
annual total return for the since inception period would have been (2.06%)
for Class C shares. Without the limitation of expenses, the yield for Class
A, Class B and Class C shares would have been 5.36%, 4.86% and 4.85%,
respectively.
(2) Not annualized.
6
<PAGE>
================================================================================
John Hancock Funds - Government Income Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock Government Income Fund Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the Lehman
Brothers Government Bond Index and is equal to $14,458 as of November 30, 1999.
The second line represents the value of the hypothetical $10,000 investment made
in the John Hancock Government Income Fund on September 30, 1994, before sales
charge, and is equal to $14,139 as of November 30, 1999. The third line
represents the same hypothetical investment made in the John Hancock Government
Income Fund, after sales charge, and is equal to $13,499 as of November 30,
1999.
Line chart with the heading John Hancock Government Income Fund Class B*,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are two lines. The first line represents the Lehman
Brothers Government Bond Index and is equal to $22,387 as of November 30, 1999.
The second line represents the value of the hypothetical $10,000 investment made
in the John Hancock Government Income Fund on May 31, 1989, before sales charge,
and is equal to $19,210 as of November 30, 1999.
Line chart with the heading John Hancock Government Income Fund Class C,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the Lehman
Brothers Government Bond Index and is equal to $9,983 as of November 30, 1999.
The second line represents the value of the hypothetical $10,000 investment made
in the John Hancock Government Income Fund on April 1, 1999, before sales
charge, and is equal to $9,907 as of November 30, 1999. The third line
represents the same hypothetical investment made in the John Hancock Government
Income Fund, after sales charge, and is equal to $9,808 as of November 30, 1999.
*No contingent deferred sales charge applicable.
- --------------------------------------------------------------------------------
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Government Income Fund
Statement of Assets and Liabilities
November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments at value - Note C:
U.S. government and agencies securities (cost - $655,391,875) ............... $627,136,950
Foreign government bonds (cost - $45,035,315) ............................... 42,198,176
Multi-family mortgage-backed bonds (cost - $4,232,236) ...................... 4,022,922
Warrants (cost - $11,499) ................................................... 10,650
Joint repurchase agreement (cost - $23,486,000) ............................. 23,486,000
Corporate savings account ................................................... 25,487
-------------
696,880,185
Receivable for shares sold .................................................... 63,752
Interest receivable ........................................................... 6,883,527
Other assets .................................................................. 305,741
-------------
Total Assets ................................................. 704,133,205
------------------------------------------------------------------------------
Liabilities:
Payable for shares repurchased ................................................ 425,825
Payable for variation margin - Note A ......................................... 41,375
Dividend payable .............................................................. 60,535
Payable to John Hancock Advisers, Inc. and affiliates - Note B ................ 773,930
Accounts payable and accrued expenses ......................................... 200,273
-------------
Total Liabilities ............................................ 1,501,938
------------------------------------------------------------------------------
Net Assets:
Capital paid-in ............................................................... 864,683,577
Accumulated net realized loss on investments and financial futures contracts .. (130,654,456)
Net unrealized depreciation of investments and financial futures contracts .... (31,244,914)
Distributions in excess of net investment income .............................. (152,940)
-------------
Net Assets ................................................... $702,631,267
==============================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial interest outstanding -
unlimited number of shares authorized with no par value)
Class A - $546,854,403/62,480,585 ............................................. $8.75
===============================================================================================
Class B - $155,324,721/17,746,551 ............................................. $8.75
===============================================================================================
Class C * - $452,143/51,659 ................................................... $8.75
===============================================================================================
Maximum Offering Price Per Share**
Class A - ($8.75 x 104.71%) ................................................... $9.16
===============================================================================================
</TABLE>
* Class C shares commenced operations on April 1, 1999.
** On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on November 30, 1999. You'll
also find the net asset value and the maximum offering price per share as of
that date.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Government Income Fund
Statement of Operations
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Interest ........................................................................... $26,701,690
------------
Expenses:
Investment management fee - Note B ................................................. 2,295,302
Distribution and service fee - Note B
Class A .......................................................................... 699,788
Class B .......................................................................... 848,181
Class C .......................................................................... 1,026
Transfer agent fee - Note B ........................................................ 909,023
Custodian fee ...................................................................... 86,804
Accounting and legal services fee - Note B ......................................... 72,595
Registration and filing fees ....................................................... 41,120
Trustees' fees ..................................................................... 26,125
Auditing fee ....................................................................... 24,827
Printing ........................................................................... 16,014
Miscellaneous ...................................................................... 8,591
Legal fees ......................................................................... 2,597
------------
Total Expenses .................................................... 5,031,993
----------------------------------------------------------------------------------
Less Expense Reduction - Note B ................................... (455,555)
----------------------------------------------------------------------------------
Net Expenses ...................................................... 4,576,438
----------------------------------------------------------------------------------
Net Investment Income ............................................. 22,125,252
----------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts:
Net realized loss on investments sold .............................................. (7,706,818)
Net realized gain on financial futures contracts ................................... 163,583
Change in net unrealized appreciation/depreciation of investments .................. (15,143,140)
Change in net unrealized appreciation/depreciation of financial futures contracts .. 50,735
------------
Net Realized and Unrealized Loss
on Investments and Financial
Futures Contracts ................................................. (22,635,640)
----------------------------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ......................................... ($510,388)
==================================================================================
</TABLE>
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Government Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1999
MAY 31, 1999 (UNAUDITED)
-------------- -------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ............................................................ $38,107,647 $22,125,252
Net realized gain (loss) on investments sold and financial futures contracts ..... 8,382,615 (7,543,235)
Change in net unrealized appreciation/depreciation of investments and financial
futures contracts .............................................................. (37,389,120) (15,092,405)
------------- -------------
Net Increase (Decrease) in Net Assets Resulting from Operations ............... 9,101,142 (510,388)
------------- -------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.5690 and $0.2726 per share, respectively) ....................... (28,770,636) (17,314,187)
Class B - ($0.5039 and $0.2411 per share, respectively) ....................... (9,336,959) (4,805,395)
Class C** - ($0.0701 and $0.2391 per share, respectively) ..................... (51) (5,670)
------------- -------------
Total Distributions to Shareholders ........................................... (38,107,646) (22,125,252)
------------- -------------
From Fund Share Transactions - Net: * ................................................. 353,722,184 (56,850,857)
------------- -------------
Net Assets:
Beginning of period............................................................... 457,402,084 782,117,764
------------- -------------
End of period (including distributions in excess of net investment
income of $152,940 and $152,940, respectively).................................. $782,117,764 $702,631,267
============= =============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Government Income Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1999
MAY 31, 1999 (UNAUDITED)
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ............................... 16,324,398 $152,558,986 5,214,404 $46,105,514
Shares issued in reorganization - Note D .. 30,190,113 285,764,515 -- --
Shares reinvested ......................... 1,838,139 17,064,295 1,311,632 11,533,163
----------- ------------ ------------ ------------
48,352,650 455,387,796 6,526,036 57,638,677
Less shares repurchased ................... (20,239,768) (188,850,730) (8,879,515) (78,504,017)
----------- ------------ ------------ ------------
Net increase (decrease) ................... 28,112,882 $266,537,066 (2,353,479) ($20,865,340)
----------- ------------ ------------ ------------
CLASS B
Shares sold ............................... 9,971,790 $93,705,559 2,029,598 $17,969,828
Shares issued in reorganization - Note D .. 9,178,316 86,877,349 -- --
Shares reinvested ......................... 497,010 4,618,186 305,704 2,686,435
----------- ------------ ------------ ------------
19,647,116 185,201,094 2,335,302 20,656,263
Less shares repurchased ................... (10,509,513) (98,025,258) (6,468,427) (57,085,264)
----------- ------------ ------------ ------------
Net increase (decrease) ................... 9,137,603 $87,175,836 (4,133,125) ($36,429,001)
=========== ============ ============ ============
CLASS C**
Shares sold ............................... 1,005 $9,235 99,756 $874,442
Shares reinvested ......................... 5 47 358 3,138
----------- ------------ ------------ ------------
1,010 9,282 100,114 877,580
Less shares repurchased ................... -- -- (49,465) (434,096)
----------- ------------ ------------ ------------
Net increase .............................. 1,010 $9,282 50,649 $443,484
=========== ============ ============ ============
</TABLE>
** Class C shares commenced operations on April 1, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Government Income Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
SEPTEMBER 30, 1994
(COMMENCEMENT OF YEAR ENDED OCTOBER 31, PERIOD FROM
OPERATIONS) TO ----------------------------- NOVEMBER 1, 1996
OCTOBER 31, 1994 1995(1) 1996 TO MAY 31, 1997(7)
------------------- ------------ ------------- ------------------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................... $8.85 $8.75 $9.32 $9.07
------- -------- -------- --------
Net Investment Income .................................... 0.06 0.72 0.65(5) 0.37(5)
Net Realized and Unrealized Gain (Loss) on
Investments, Options and Financial Futures Contracts ... (0.10) 0.57 (0.25) (0.14)
------- -------- -------- --------
Total from Investment Operations ....................... (0.04) 1.29 0.40 0.23
------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ..................... (0.06) (0.72) (0.65) (0.37)
------- -------- -------- --------
Net Asset Value, End of Period ........................... $8.75 $9.32 $9.07 $8.93
======= ======== ======== ========
Total Investment Return at Net Asset Value (2,3) ......... (0.45%)(4) 15.32% 4.49% 2.57%(4)
Total Adjusted Investment Return at Net
Asset Value (3,9) ...................................... (0.46%)(4) 15.28% -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................. $223 $470,569 $396,323 $359,758
Ratio of Expenses to Average Net Assets (2) .............. 0.12%(4) 1.19% 1.17% 1.13%(6)
Ratio of Adjusted Expenses to Average Net Assets ......... -- -- -- --
Ratio of Net Investment Income
to Average Net Assets (2) .............................. 0.71%(4) 7.38% 7.10% 7.06%(6)
Ratio of Adjusted Net Investment Income to
Average Net Assets ..................................... -- -- -- --
Fee Reduction Per Share (5) .............................. -- -- -- --
Portfolio Turnover Rate .................................. 92% 102%(8) 106% 129%
<CAPTION>
YEAR ENDED MAY 31, SIX MONTHS ENDED
--------------------------- NOVEMBER 30, 1999
1998 1999 (UNAUDITED)
---------- ---------- -----------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................... $8.93 $9.25 $9.02
--------- --------- --------
Net Investment Income .................................... 0.62(5) 0.57(5) 0.27(5)
Net Realized and Unrealized Gain (Loss) on
Investments, Options and Financial Futures Contracts ... 0.32 (0.23) (0.27)
--------- --------- --------
Total from Investment Operations ....................... 0.94 0.34 0.00
--------- --------- --------
Less Distributions:
Dividends from Net Investment Income ..................... (0.62) (0.57) (0.27)
--------- --------- --------
Net Asset Value, End of Period ........................... $9.25 $9.02 $8.75
========= ========= ========
Total Investment Return at Net Asset Value (2,3) ......... 10.82% 3.64% 0.10%(4)
Total Adjusted Investment Return at Net
Asset Value (3,9) ...................................... -- 3.59% 0.04%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................. $339,572 $584,766 $546,854
Ratio of Expenses to Average Net Assets (2) .............. 1.10% 1.05% 1.07%(6)
Ratio of Adjusted Expenses to Average Net Assets ......... -- 1.10% 1.19%(6)
Ratio of Net Investment Income
to Average Net Assets (2) .............................. 6.79% 6.08% 6.17%(6)
Ratio of Adjusted Net Investment Income to
Average Net Assets ..................................... -- 6.03% 6.05%(6)
Fee Reduction Per Share (5) .............................. -- $0.00(10) $0.01
Portfolio Turnover Rate .................................. 106% 161%(8) 56%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: the net investment income, net realized
and unrealized gains (losses), dividends and total investment return of the
Fund. It shows how the Fund's net asset value for a share has changed since the
end of the previous period. Additionally, important relationships between some
items presented in the financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Government Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, PERIOD FROM
-------------------------------------- NOVEMBER 1, 1996 TO
1994 1995(1) 1996 TO MAY 31, 1997(7)
---------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................... $10.05 $8.75 $9.32 $9.08
---------- ---------- ---------- ----------
Net Investment Income ...................................... 0.65 0.65 0.58(5) 0.33(5)
Net Realized and Unrealized Gain (Loss) on
Investments, Options and Financial Futures Contracts ..... (1.28) 0.57 (0.24) (0.15)
---------- ---------- ---------- ----------
Total from Investment Operations ......................... (0.63) 1.22 0.34 0.18
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ....................... (0.65) (0.65) (0.58) (0.33)
Distributions from Net Realized Gain on Investments
Sold and Financial Futures Contracts ..................... (0.02) -- -- --
---------- ---------- ---------- ----------
Total Distributions ...................................... (0.67) (0.65) (0.58) (0.33)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ............................. $8.75 $9.32 $9.08 $8.93
========== ========== ========== ==========
Total Investment Return at Net Asset Value (2,3) ........... (6.42%) 14.49% 3.84% 2.02%(4)
Total Adjusted Investment Return at Net Asset Value (3,9) .. (6.43%) 14.47% -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................... $241,061 $226,954 $178,124 $153,390
Ratio of Expenses to Average Net Assets (2) ................ 1.93% 1.89% 1.90% 1.86%(6)
Ratio of Adjusted Expenses to Average Net Assets ........... -- -- -- --
Ratio of Net Investment Income
to Average Net Assets (2) ................................ 6.98% 7.26% 6.37% 6.32%(6)
Ratio of Adjusted Net Investment Income
to Average Net Assets .................................... -- -- -- --
Fee Reduction Per Share (5) ................................ -- -- -- --
Portfolio Turnover Rate .................................... 92% 102%(8) 106% 129%
<CAPTION>
YEAR ENDED MAY 31, SIX MONTHS ENDED
--------------------------- NOVEMBER 30, 1999
1998 1999 (UNAUDITED)
---------- ---------- -----------------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................... $8.93 $9.25 $9.02
---------- ---------- ----------
Net Investment Income ...................................... 0.55(5) 0.50(5) 0.24(5)
Net Realized and Unrealized Gain (Loss) on
Investments, Options and Financial Futures Contracts ..... 0.32 (0.23) (0.27)
---------- ---------- ----------
Total from Investment Operations ......................... 0.87 0.27 (0.03)
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ....................... (0.55) (0.50) (0.24)
Distributions from Net Realized Gain on Investments
Sold and Financial Futures Contracts ..................... -- -- --
---------- ---------- ----------
Total Distributions ...................................... (0.55) (0.50) (0.24)
---------- ---------- ----------
Net Asset Value, End of Period ............................. $9.25 $9.02 $8.75
========== ========== ==========
Total Investment Return at Net Asset Value (2,3) ........... 10.01% 2.92% (0.26%)(4)
Total Adjusted Investment Return at Net Asset Value (3,9) .. -- 2.87% (0.32%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................... $117,830 $197,342 $155,325
Ratio of Expenses to Average Net Assets (2) ................ 1.85% 1.74% 1.78%(6)
Ratio of Adjusted Expenses to Average Net Assets ........... -- 1.79% 1.90%(6)
Ratio of Net Investment Income
to Average Net Assets (2) ................................ 6.05% 5.39% 5.45%(6)
Ratio of Adjusted Net Investment Income
to Average Net Assets .................................... -- 5.34% 5.33%(6)
Fee Reduction Per Share (5) ................................ -- $0.00(10) $0.01
Portfolio Turnover Rate .................................... 106% 161%(8) 56%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Government Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
APRIL 1, 1999 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) NOVEMBER 30, 1999
TO MAY 31, 1999 (UNAUDITED)
--------------- -----------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................... $9.15 $9.02
-------- --------
Net Investment Income(5) ....................................... 0.07 0.24
Net Realized and Unrealized Loss on
Investments, Options and Financial Futures Contracts ......... (0.13) (0.27)
-------- --------
Total from Investment Operations ............................. (0.06) (0.03)
-------- --------
Less Distributions:
Dividends from Net Investment Income ........................... (0.07) (0.24)
-------- --------
Net Asset Value, End of Period ................................. $9.02 $8.75
======== ========
Total Investment Return at Net Asset Value (3) ................. (0.65%)(4) (0.28%)(4)
Total Adjusted Investment Return at Net Asset Value (3,9) ...... (0.66%)(4) (0.34%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ....................... $9 $452
Ratio of Expenses to Average Net Assets ........................ 1.80%(6) 1.82%(6)
Ratio of Adjusted Expenses to Average Net Assets ............... 1.85%(6) 1.94%(6)
Ratio of Net Investment Income to Average Net Assets ........... 5.33%(6) 5.42%(6)
Ratio of Adjusted Net Investment Income to Average Net Assets .. 5.28%(6) 5.30%(6)
Fee Reduction Per Share (5) .................................... $0.00(10) $0.01
Portfolio Turnover Rate ........................................ 161%(8) 56%
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(2) Excluding interest expense, which equalled 0.01% and 0.04% for Class A for
the periods ended October 31, 1994 and 1995, respectively, and 0.01% and
0.02% for Class B for the years ended October 31, 1994 and 1995,
respectively.
(3) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(4) Not annualized.
(5) Based on the average of the shares outstanding at the end of each month.
(6) Annualized.
(7) Effective May 31, 1997, the fiscal year end changed from October 31 to May
31.
(8) Portfolio turnover excludes merger activity.
(9) An estimated total return calculation that does not take into
consideration management fee reductions and other expense subsidies by the
Adviser during the periods shown.
(10) Less than $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Government Income Fund
Schedule of Investments
November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
Government Income Fund on November 30, 1999. It's divided into five main
categories: U.S. government and agencies securities, foreign government bonds,
multi-family mortgage-backed bonds, warrants and short-term investments.
Short-term investments, which represent the Fund's "cash" position, are listed
last.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000s MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- ----------- ------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
Government - U.S. (11.26%)
United States Treasury,
Bond ........................................ 15.750% 11-15-01 $14,340 $16,876,316
Bond ........................................ 12.750 11-15-10 9,000 11,766,060
Bond ........................................ 12.000 08-15-13 13,100 17,797,529
Bond ........................................ 10.750 08-15-05 5,000 6,040,600
Bond ........................................ 9.250 02-15-16 12,000 15,075,000
Bond ........................................ 8.875 08-15-17 3,000 3,694,230
Bond ........................................ 6.125 08-15-29 8,000 7,831,280
------------
79,081,015
------------
Government - U.S. Agencies (78.00%)
Federal Home Loan Mortgage Corp.,
15 Yr Pass Thru Ctf ......................... 10.500 02-01-03 700 713,754
30 Yr Pass Thru Ctf ......................... 9.500 08-01-16 5,527 5,837,450
CMO REMIC 1094-K ............................ 7.000 06-15-21 1,154 1,146,707
CMO REMIC 1603-K ............................ 6.500 10-15-23 5,000 4,657,800
CMO REMIC 1608-L ............................ 6.500 09-15-23 12,000 11,145,000
CMO REMIC 1617-PM ........................... 6.500 11-15-23 10,000 9,312,500
CMO REMIC 1634-PN ........................... 4.500 12-15-23 10,575 8,152,585
CMO REMIC 1667-PE ........................... 6.000 03-15-08 11,750 11,610,410
CMO REMIC 1727-I ............................ 6.500 05-15-24 5,000 4,629,650
Deb ......................................... 6.700 03-03-08 1,000 954,690
Note ........................................ 5.750 06-15-01 17,500 17,374,175
Federal Judiciary Office Building,
Bond ........................................ Zero 02-15-01 250 231,953
Federal National Mortgage Assn.,
10 Yr Pass Thru Ctf ......................... 9.050 04-10-00 24,890 25,127,202
10 Yr Pass Thru Ctf ......................... 8.900 06-12-00 5,000 5,067,950
15 Yr Pass Thru Ctf ......................... 9.000 02-01-10 2,571 2,642,110
15 Yr Pass Thru Ctf ......................... 7.500 09-01-14 4,882 4,932,069
15 Yr Pass Thru Ctf ......................... 6.500 05-01-13 12,676 12,394,652
15 Yr Pass Thru Ctf ......................... 6.000 09-01-13 to 49,562 47,471,197
08-01-28
30 Yr Pass Thru Ctf.......................... 8.500 09-01-24 to 4,597 4,735,756
10-01-24
Bond......................................... 6.250 05-15-29 11,500 10,427,280
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Government Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000s MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- ----------- ------
<S> <C> <C> <C> <C>
Government - U.S. Agencies (continued)
Federal National Mortgage Assn. (continued),
CMO REMIC 1994-60-PJ ........................ 7.000% 04-25-24 $6,100 $5,876,923
CMO REMIC 1994-75-K ......................... 7.000 04-25-24 3,100 2,989,547
CMO REMIC 1996-28-PK ........................ 6.500 07-25-25 7,589 6,965,535
CMO REMIC G-8-E ............................. 9.000 04-25-21 2,653 2,767,736
CMO REMIC 1990-51-H ......................... 7.500 05-25-20 100 100,120
CMO REMIC 1990-58-J ......................... 7.000 05-25-20 3,003 2,975,299
CMO REMIC 1990-94-D ......................... 6.500 08-25-20 665 652,257
CMO REMIC 1991-56-M ......................... 6.750 06-25-21 2,143 2,113,706
CMO REMIC 1993-225-TK ....................... 6.500 12-25-23 5,032 4,690,730
Deb ......................................... 8.500 02-01-05 6,050 6,067,969
Medium Term Note ............................ 11.875 05-19-00 6,800 6,973,196
Note ........................................ 5.250 01-15-09 7,000 6,273,750
Financing Corp.,
Bond ........................................ 10.700 10-06-17 2,000 2,726,240
Bond ........................................ 9.400 02-08-18 4,000 4,939,360
Bond ........................................ 10.350 08-03-18 12,500 16,693,375
Bond ........................................ 9.650 11-02-18 1,600 2,024,496
Government National Mortgage Assn.,
30 Yr Adjustable Rate Mortgage .............. 6.375# 03-20-23 6,231 6,312,264
30 Yr Adjustable Rate Mortgage .............. 6.125# 10-20-22 to 8,054 8,172,306
10-20-23
30 Yr Pass Thru Ctf ......................... 6.000 11-15-28 to 86,356 79,772,063
03-15-29
30 Yr Pass Thru Ctf ......................... 6.500 02-15-27 to 77,095 73,493,909
10-15-28
30 Yr Pass Thru Ctf ......................... 7.000 01-15-28 to 45,818 44,743,680
05-15-29
30 Yr Pass Thru Ctf ......................... 7.500 06-15-23 to 16,674 16,689,354
02-15-26
30 Yr Pass Thru Ctf ......................... 8.000 09-15-23 to 6,974 7,106,302
01-15-25
30 Yr Pass Thru Ctf ......................... 11.000 01-15-14 to 3,649 4,027,515
12-15-15
Private Export Funding Corp.,
Sec Note, Ser G ............................. 6.670 09-15-09 6,000 5,887,500
Small Business Administration,
Pass Thru Ctf Ser 97-B ...................... 7.100 02-01-17 4,415 4,294,898
Pass Thru Ctf Ser 97-D ...................... 7.500 04-01-17 4,422 4,387,504
Pass Thru Ctf Ser 97-E ...................... 7.300 05-01-17 5,422 5,323,301
Tennessee Valley Authority,
Note Ser D .................................. 8.250 04-15-42 22,824 24,450,210
------------
548,055,935
------------
TOTAL U.S. GOVERNMENT AND AGENCIES SECURITIES
(Cost $655,391,875) (89.26%) 627,136,950
------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Government Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000s MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- ----------- ------
<S> <C> <C> <C> <C>
FOREIGN GOVERNMENT BONDS
U.S. Dollar-Denominated Foreign Government Bonds (6.00%)
Hydro-Quebec,
Deb Ser HK ............................................. 9.375% 04-15-30 $9,440 $11,245,400
Gtd Bond ............................................... 9.400 02-01-21 7,000 8,303,820
International Bank for Reconstruction and Development,
Deb .................................................... 8.625 10-15-16 10,000 11,325,000
Landesbank Baden-Wuerttemberg,
Sub Note ............................................... 7.625 02-01-23 11,300 11,323,956
------------
TOTAL FOREIGN GOVERNMENT BONDS
(Cost $45,035,315) (6.00%) 42,198,176
------- ------------
MULTI-FAMILY MORTGAGE-BACKED BONDS (0.57%)
DLJ Mortgage Acceptance Corp.,
CMO REMIC 1993-M10-A2................................... 7.200 07-15-03 4,084 4,022,922
------------
TOTAL MULTI-FAMILY MORTGAGE-BACKED BONDS
(Cost $4,232,236) (0.57%) 4,022,922
------- ------------
<CAPTION>
NUMBER OF
WARRANTS
-------------
<S> <C> <C> <C>
WARRANTS
Government - Foreign (0.00%)
Argentina, Republic of (Argentina) (Expires 12-03-99)............ 3,000 150
Argentina, Republic of (Argentina) (Expires 02-25-00)............ 7,500 10,500
------------
TOTAL WARRANTS
(Cost $11,499) (0.00%) 10,650
------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Government Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000s MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- -------- ------------ -------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.35%)
Investment in a joint repurchase agreement transaction with
Barclay's, Inc. - Dated 11-30-99, due 12-01-99 (Secured by U.S.
Treasury Bonds, 7.500% thru 11.625%, due 11-15-04 thru 11-15-22
and U.S. Treasury Notes, 6.625% thru 7.500%, due 03-31-02 thru
02-15-05) - Note A........................................................... 5.690% $23,486 $23,486,000
-------------
Corporate Savings Account (0.00%)
Investor's Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.50%........................................................... 25,487
-------------
TOTAL SHORT-TERM INVESTMENTS (3.35%) 23,511,487
------- -------------
TOTAL INVESTMENTS (99.18%) 696,880,185
------- -------------
OTHER ASSETS AND LIABILITIES, NET (0.82%) 5,751,082
------- -------------
TOTAL NET ASSETS (100.00%) $702,631,267
======= =============
</TABLE>
# Represents rate in effect on November 30, 1999.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Government Income Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Bond Trust (the "Trust") is a diversified open-end management
investment company, registered under the Investment Company Act of 1940, as
amended. The Trust consists of three series: John Hancock Government Income Fund
(the "Fund"), John Hancock High Yield Bond Fund and John Hancock Intermediate
Government Fund. The other two series of the Trust are reported in separate
financial statements. The investment objective of the Fund is to earn a high
level of current income consistent with preservation of capital by investing
primarily in securities that are issued or guaranteed as to principal and
interest by the U.S. government, its agencies or instrumentalities ("U.S.
government securities").
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B and Class C shares. The shares of each
class represent an interest in the same portfolio of investments of the Fund and
have equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in joint repurchase agreement transactions. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis for both financial
reporting and federal income tax purposes.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $117,919,246 of capital loss
carryforwards available, to the extent provided by regulations, to offset future
net realized capital gains. To the extent such carryforwards are used by the
Fund, no capital gains distribution will be made. The carryforwards expire as
follows: May 31, 2002 -- $76,987,244, May 31, 2003 -- $31,030,988, May 31, 2004
- -- $5,561,263 and May 31, 2005 -- $4,339,751. Availability of a certain amount
of loss carryforwards which were acquired on September 15, 1995 and December 4,
1998 in mergers, may be limited in a given year. Additionally, net capital
losses of $4,825,332 attributable to security transactions incurred after
October 31, 1998 are treated as arising on the first day (June 1, 1999) of the
Fund's next taxable year.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Interest income on investment securities
is recorded on the accrual basis. Foreign income may be subject to foreign
withholding taxes, which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund, if any,
with respect to each class of shares will be calculated in the same manner, at
the same time and will be in
19
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Government Income Fund
the same amount, except for the effect of expenses that may be applied
differently to each class.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative size of the funds.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund entered into a
syndicated line of credit agreement with various banks that enables the Fund to
participate with other funds managed by the Adviser in an unsecured line of
credit with banks which permit borrowings up to $500 million, collectively.
Interest is charged to each fund, based on its borrowings. In addition, a
commitment fee is charged based on the average daily unused portion of the line
of credit and is allocated among the participating funds. The Fund had no
borrowing activity for the period ended November 30, 1999.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates and other market conditions. Buying futures tends
to increase the Fund's exposure to the underlying instrument. Selling futures
tends to decrease the Fund's exposure to the underlying instrument or hedge
other Fund instruments. At the time the Fund enters into a financial futures
contract, it is required to deposit with its custodian a specified amount of
cash or U.S. government securities, known as "initial margin," equal to a
certain percentage of the value of the financial futures contract being traded.
Each day, the futures contract is valued at the official settlement price of the
board of trade or U.S. commodities exchange on which it trades. Subsequent
payments, known as "variation margin," to and from the broker are made on a
daily basis as the market price of the financial futures contract fluctuates.
Daily variation margin adjustments, arising from this "mark to market," are
recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks
of entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At November 30, 1999, open positions in financial futures contracts were
as follows:
UNREALIZED
APPRECIATION/
EXPIRATION OPEN CONTRACTS POSITION (DEPRECIATION)
- ---------- -------------- -------- --------------
MAR 00 7 TREASURY NOTE SHORT $16,904
MAR 00 36 TREASURY NOTE SHORT 75,599
MAR 00 161 TREASURY NOTE SHORT 3,287
MAR 00 28 TREASURY BOND LONG (38,477)
-------
$57,313
=======
At November 30, 1999, the Fund has deposited in a segregated account
$540,000 par value of U.S. Treasury Bond, 15.75%, 11-15-01 and $120,000 par
value of U.S. Treasury Bond, 12.75% 11-15-10, to cover margin requirements on
open financial futures contracts.
20
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Government Income Fund
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Over-the-counter options will be
valued at the mean between the last asked and bid prices. Upon the writing of a
call or put option, an amount equal to the premium received by the Fund will be
included in the Statement of Assets and Liabilities as an asset and
corresponding liability. The amount of the liability will be subsequently marked
to market to reflect the current market value of the written option.
The Fund may use option contracts for speculative purposes and/or to
manage its exposure to the bond market. Writing puts and buying calls will tend
to increase the Fund's exposure to the underlying instrument and buying puts and
writing calls will tend to decrease the Fund's exposure to the underlying
instrument, or hedge other Fund investments.
The maximum exposure to loss for any purchased options will be limited to
the premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms ("credit risk"), or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in highly unusual market conditions. To minimize
credit and liquidity risks in over-the-counter option contracts, the Fund will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit
risk may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
At November 30, 1999, there were no open option transactions.
NOTE B -
MANAGEMENT FEE, ADMINISTRATIVE SERVICES
AND TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.65% of the first $200,000,000 of the Fund's
average daily net asset value, (b) 0.625% of the next $300,000,000 and (c) 0.60%
of the Fund's average daily net asset value in excess of $500,000,000. Effective
December 4, 1998, the Adviser agreed to limit the Fund's management fee to 0.50%
of the Fund's daily net assets. Accordingly, the reduction in the management fee
amounted to $455,555 for the period ended November 30, 1999. The Adviser may
terminate this limitation in the future.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended November
30, 1999, net sales charges received with regard to sales of Class A shares
amounted to $110,105. Out of this amount, $5,692 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $49,120
was paid as sales commissions to unrelated broker-dealers and $55,293 was paid
as sales commissions to sales personnel of Signator Investors ("Signator
Investors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Signator Investors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended November 30,
1999, contingent deferred sales charges paid to JH Funds amounted to $293,000.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% of the lesser of the current market value
at the time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in whole or
in part to defray its expenses related to providing distribution related
services to the Fund in connection with the sale of Class C shares. For the
period ended November 30,
21
<PAGE>
=========================NOTES TO FINANCIAL STATEMENTS==========================
John Hancock Funds - Government Income Fund
1999, there were no contingent deferred sales charges.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A, Class B and Class C pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses, at an annual rate not to exceed
0.25% of Class A average daily net assets and 1.00% of Class B and Class C
average daily net assets, to reimburse JH Funds for its distribution and service
costs. A maximum of 0.25% of such payments may be service fees as defined by the
Conduct Rules of the National Association of Securities Dealers. Under the
Conduct Rules, curtailment of a portion of the Fund's 12b-1 payments could occur
under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The
Fund pays transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford, Ms. Anne C. Hodsdon and Mr.
Richard S. Scipione are directors and/or officers of the Adviser and/or its
affiliates as well as Trustees of the Fund. The compensation of unaffiliated
Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for
tax purposes their receipt of this compensation under the John Hancock Group of
Funds Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation liability
are recorded on the Fund's books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to market
on a periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. The investment had no impact on the operations
of the Fund.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended November 30, 1999, aggregated $411,892,957
and $488,008,586, respectively.
The cost of investments (excluding the corporate savings account) owned at
November 30, 1999 for federal income tax purposes was $728,156,925. Gross
unrealized appreciation and depreciation of investments aggregated $4,152,668
and $35,454,895, respectively, resulting in net unrealized depreciation of
$31,302,227.
NOTE D -
REORGANIZATION
On November 11, 1998, the shareholders of John Hancock Sovereign U.S. Government
Income Fund (JHSGIF) approved a plan of reorganization between JHSGIF and the
Fund, providing for the transfer of substantially all of the assets and
liabilities of JHSGIF to the Fund in exchange solely for Class A and Class B
shares of the Fund. The acquisition of JHSGIF was accounted for as a tax free
exchange of 30,190,113 Class A shares and 9,178,316 Class B shares of the Fund,
which amounted to $285,764,515 and $86,877,349 for Class A and B shares,
respectively, including $11,220,009 of unrealized appreciation, after the close
of business at December 4, 1998. The aggregate net assets of JHSGIF and the Fund
were $372,641,864 and $500,562,839, respectively, immediately before the
acquisition.
22
<PAGE>
=====================================NOTES======================================
John Hancock Funds - Government Income Fund
23
<PAGE>
================================================================================
---------------
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
INTERNET: www.jhfunds.com ---------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Government Income Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[Recycle Logo] Printed on Recycled Paper 560SA 11/99
1/00
<PAGE>
-----------------------------
The latest report from your
Fund's management team
-----------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[PHOTO]
Intermediate
Government Fund
NOVEMBER 30, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
----------------------------------------
DIRECTORS
STEPHEN L. BROWN
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R.DION*
MAUREEN R. FORD
ANNE C. HODSDON
CHARLES L. LADNER
STEVEN R. PRUCHANSKY*
RICHARD S. SCIPIONE
LT. GEN. NORMAN H. SMITH, USMC (RET.)
JOHN P. TOOLAN
*Members of the Audit Committee
OFFICERS
STEPHEN L. BROWN
Chairman
MAUREEN R. FORD
Vice Chairman and Chief Executive Officer
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Executive Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Vice President and Compliance Officer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
----------------------------------------
===================================CEO CORNER===================================
DEAR FELLOW SHAREHOLDERS:
I am delighted that one of my first official duties at John Hancock Funds is to
welcome you to the New Millennium! I wish you all the best for a century filled
with momentous occasions.
Every New Year, of course, provides us with a built-in opportunity to make new
resolutions, or re-commit to old ones. It seems fitting, therefore, that this
special New Year 2000 coincides with a very important, although certainly less
exotic, event.
Starting last October, personalized Social Security statements are being sent to
125 million workers over age 25, showing estimates of the retirement, disability
and survivor benefits that they and their families are eligible to receive now
and in the future.
The statements, to be sent out annually, will provide people with a glimpse of
what they can expect from the government when they retire. This should be
comforting to those who feared that Social Security wouldn't be there for them
at all. But many people also already know that government benefits will only
fulfill a small piece of their retirement needs.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush right next to fourth paragraph.]
- --------------------------------------------------------------------------------
The best thing about this massive mailing is that it can serve as a wake-up call
to encourage families to focus more on planning for their financial future.
When you receive your statement, expected to be within three months of your next
birthday, we urge you to read it carefully for accuracy, making sure your annual
earnings history and amounts you have contributed over the years are correct.
Keep in mind that the estimated benefits are precisely that, and that rules and
regulations may change by the time you retire. Also remember that they are not
inflation adjusted, so it would be unrealistic to expect them to have the same
purchasing power in the future as they would today.
We also encourage you to use this mailing as a reason to contact your investment
professional, or to select one if you are not working with somebody. He or she
can help you focus on establishing and maintaining a sound plan to achieve a
comfortable retirement. Together, you should make sure to maximize your
participation in tax-advantaged programs like IRAs and 401(k)s.
The stakes are too high to leave your retirement lifestyle to chance. Congress'
awareness-raising effort is commendable. The next step is yours. Mark the
beginning of the New Millennium by taking it.
Sincerely,
/s/ Maureen R. Ford
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY BARRY H. EVANS, CFA, AND DAWN BAILLIE, PORTFOLIO MANAGERS
John Hancock
Intermediate
Government Fund
Rising interest rates and inflation fears
cause volatile bond market
Inflation concerns grew in the second half of the year, as the U.S. economy
proved unstoppable. Economic growth remained strong, despite mixed signals from
monthly data. Unemployment levels reached a 30-year low, increasing the
potential for wage inflation. Commodity prices, including oil, strengthened. And
global economies began to pick up, removing the deflationary effect that had
somewhat restrained U.S. economic growth in recent years. The dollar also
weakened against the yen, giving foreign investors added incentive to buy U.S.
goods. The Federal Reserve responded to these inflationary pressures by raising
short-term interest rates three times between June 30 and November 16 for a
total increase of three-quarters of a percentage point. Bond investors reacted
quickly to the latest economic news, pushing bond yields higher in advance of
the Fed's moves. The yield on the 30-year Treasury climbed from a low of 5.82%
at the end of May to a high of 6.38% in late October, ending November at 6.29%.
Bond performance review
Rising interest rates weakened bond performance, especially U.S. Treasuries,
which are the most interest-sensitive bonds in the government sector. For the
six months ended November 30, 1999, the Lehman Brothers Treasury Index
"...the U.S. economy proved unstoppable."
- --------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock Intermediate
Government Fund. Caption below reads "Portfolio managers Barry Evans and Dawn
Baillie."]
- --------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - Intermediate Government Fund
"We boosted our stake in mortgage bonds issued by U.S. government agencies early
in 1999 when prices were cheap."
- --------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into three sections (from top to left): Short-Term Investments
& Other 4%, U.S. Treasuries 28% and U.S. Agencies 68%. A note below the chart
reads "As a percentage of net assets on November 30, 1999."]
- --------------------------------------------------------------------------------
returned 0.40%. By comparison, bonds with a yield advantage over Treasuries --
namely mortgage bonds and U.S. government agency bonds -- fared better. The
Lehman Brothers Mortgage-Backed Securities Fixed-Rate Index, for example,
returned 1.21% during the same six-month period.
Fund performance
Fortunately, John Hancock Intermediate Government Fund favored both mortgage
bonds and U.S. government agency bonds over Treasuries. For the six months ended
November 30, 1999, the Fund's Class A, Class B and Class C shares had total
returns of 0.82%, 0.44% and 0.43%, respectively, at net asset value. By
comparison, the average intermediate-term government fund returned 0.30% during
the same time, according to Lipper, Inc.(1) Keep in mind that your net asset
value return will differ from the Fund's performance if you were not invested
for the entire period and did not reinvest all distributions. For longer-term
performance information, please see pages six and seven.
Yield advantage
We boosted our stake in mortgage bonds issued by U.S. government agencies early
in 1999 when prices were cheap. During the six-month period, these investments
appreciated nicely as investors looked for higher yields to offset falling bond
prices. Our focus was on GNMA bonds with 7% and 7.5% coupons (or stated interest
rates). Mortgage bonds with current coupons like these are easy to buy and sell,
which is especially important when the market is volatile. Plus, they carry less
prepayment risk -- the risk that homeowners will pay off their mortgages early.
At the end of November, our mortgage stake was 37% of net assets. We also
invested heavily in U.S. government agencies themselves during the period,
buying mainly 30-year securities that offered added yield and liquidity. These
purchases helped us boost non-mortgage U.S. government agencies to 31% of net
assets, up from 24% at the end of May. At the same time, we trimmed Treasuries
to 28% of net assets by selling some 30-year bonds that had performed well. We
held on to 10- and 30-year bonds to help us during periods when the yield curve
- -- the difference in yield between short- and long-term bonds -- flattened.
Duration moves
As always, we shifted the Fund's duration -- a measure of interest-rate
sensitivity -- to keep pace with the market. The longer a bond's duration, the
more its price will fall as interest rates rise -- or rise as interest rates
fall. At the start of the six-month period, the Fund's duration was 4.15 years,
slightly longer than our peer group average. We increased the duration briefly
in
4
<PAGE>
================================================================================
John Hancock Funds - Intermediate Government Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the six months ended November 30, 1999." The
chart is scaled in increments of 1% with 0% at the bottom and 2% at the top. The
first bar represents the 0.82% total return for John Hancock Intermediate
Government Fund Class A. The second bar represents the 0.44% total return for
John Hancock Intermediate Government Fund Class B. The third bar represents the
0.43% total return for John Hancock Intermediate Government Fund Class C. The
fourth bar represents the 0.30% total return for Average intermediate term
government fund. A note below the chart reads "Total returns for John Hancock
Intermediate Government Fund are at net asset value with all distributions
reinvested. The average intermediate term government fund is tracked by Lipper,
Inc. See the following two pages for historical performance information."]
- --------------------------------------------------------------------------------
early June then scaled back to 4.15 years for the rest of the summer. Soon after
the August increase in interest rates, we lengthened duration to 4.25 years,
believing this would be the Fed's last move for the year. We kept duration at
4.25 years through November, somewhat hindering performance as interest rates
climbed higher.
A look ahead
We expect U.S. economic growth to slow, but not until the second half of 2000.
In the meantime, inflation will remain a concern. The Fed will most likely raise
interest rates again sometime in the first quarter of the new year. How much and
when depends largely on fourth-quarter gross domestic product (GDP) numbers,
which come out in January. A strong start to the holiday shopping season may
well drive GDP higher. Employment reports will also be key, especially the
employment cost index -- a measure of wage inflation, unemployment levels and
average hourly earnings. Any further rise in commodity prices or acceleration in
economies overseas could also worsen inflation worries. The bond market hates
inflation -- even the prospect of inflation -- because it erodes the value of
investors' fixed-income earnings. With that in mind, we expect the market to
remain volatile in the first half of the new year. To prepare for this
environment, we plan to shorten the Fund's duration to neutral -- around 4.0
years -- by selling some 30-year Treasury bonds and moving into cash. We may
also sell a small portion of our mortgage and agency investments to capture
recent appreciation. While the road just ahead looks rocky, we expect long-term
bond investors to benefit from the Fed's vigilant efforts to control inflation.
"...we expect long-term bond investors to benefit from the Fed's vigilant
efforts to control inflation."
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
(1) Figures from Lipper, Inc. include reinvested dividends and do not take into
account sales charges. Actual load-adjusted performance is lower.
5
<PAGE>
================================================================================
John Hancock Funds - Intermediate Government Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Intermediate Government Fund. Total return
measures the change in value of an investment from the beginning to the end of a
period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 3%. Class B performance reflects a maximum contingent deferred sales
charge (maximum 3% and declining to 0% over four years). Class C performance
includes a contingent deferred sales charge (1% declining to 0% after one year).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/91)
---- ----- ----------
Cumulative Total Returns (3.56%) 30.14% 45.03%
Average Annual Total Returns(1) (3.56%) 5.41% 4.91%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/31/91)
---- ----- ----------
Cumulative Total Returns (4.12%) 29.56% 41.85%
Average Annual Total Returns(1) (4.12%) 5.32% 4.61%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
INCEPTION
(4/1/99)
--------
Cumulative Total Return (0.96%)
Average Annual Total Return (0.96%)(2)
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of November 30, 1999
SEC 30-DAY
YIELD
----------
John Hancock Intermediate Government Fund: Class A 5.36%
John Hancock Intermediate Government Fund: Class B 4.76%
John Hancock Intermediate Government Fund: Class C 4.74%
Notes to Performance
(1) Prior to December 5, 1997, the Adviser had agreed to limit the Fund's
expenses, including management fee, to 0.75% and 1.50% of the average net
assets attributable to the Class A and Class B shares, respectively.
Without the reduction of expenses, the average annual total returns for
the five-year and since inception periods would have been 5.09% and 4.53%,
respectively, for Class A shares and 5.00% and 4.23%, respectively, for
Class B shares.
(2) Not annualized.
6
<PAGE>
================================================================================
John Hancock Funds - Intermediate Government Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Intermediate Government Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Lipper Intermediate U.S. Government Index and Lehman
Brothers Government Bond Index. The Lipper Intermediate U.S. Government Index is
an equally weighted unmanaged index that measures the performance of funds with
at least 65% of their assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, with dollar-weighted average
maturities of five to ten years. The Lehman Brothers Government Bond Index is an
unmanaged index that measures the performance of U.S.Treasury bonds and U.S.
government agency bonds. It is not possible to invest in an index. Past
performance is not indicative of future results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock Intermediate Government Fund Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are four lines. The first line represents the Lehman
Brothers Government Bond Index and is equal to $16,518 as of November 30, 1999.
The second line represents the Lipper Intermediate U.S. Government Index and is
equal to $15,344 as of November 30, 1999. The third line represents the value of
the hypothetical $10,000 investment made in the John Hancock Intermediate
Government Fund on December 31, 1991, before sales charge, and is equal to
$14,970 as of November 30, 1999. The fourth line represents the same
hypothetical investment made in the John Hancock Intermediate Government Fund,
after sales charge, and is equal to $14,521 as of November 30, 1999.
Line chart with the heading John Hancock Intermediate Government Fund Class B*,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the Lehman
Brothers Government Bond Index and is equal to $16,518 as of November 30, 1999.
The second line represents the Lipper Intermediate U.S. Government Index and is
equal to $15,344 as of November 30, 1999. The third line represents the value of
the hypothetical $10,000 investment made in the John Hancock Intermediate
Government Fund on December 31, 1991, before sales charge, and is equal to
$14,191 as of November 30, 1999.
Line chart with the heading John Hancock Intermediate Government Fund Class C,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are four lines. The first line represents the value
of the hypothetical $10,000 investment made in the John Hancock Intermediate
Government Fund on April 1, 1999, before sales charge, and is equal to $10,005
as of November 30, 1999. The second line represents the Lipper Intermediate U.S.
Government Index and is equal to $9,985 as of November 30, 1999. The third line
represents the Lehman Brothers Government Bond Index and is equal to $9,983 as
of November 30, 1999. The fourth line represents the same hypothetical
investment made in the John Hancock Intermediate Government Fund, after sales
charge, and is equal to $9,905 as of November 30, 1999.
*No contingent deferred sales charge applicable.
- --------------------------------------------------------------------------------
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Intermediate Government Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on November 30, 1999. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
U.S. government and agencies securities
(cost - $194,944,238) ...................................... $188,741,689
Foreign government bonds (cost - $3,810,000) ................. 3,397,500
Joint repurchase agreement (cost - $2,106,000) ............... 2,106,000
Corporate savings account .................................... 655
------------
194,245,844
Receivable for shares sold .................................... 49,210
Interest receivable ........................................... 2,378,426
Other assets .................................................. 30,647
------------
Total Assets ................................ 196,704,127
-----------------------------------------------------------
Liabilities:
Payable for shares repurchased ................................ 20,539
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ...................................... 147,501
Accounts payable and accrued expenses ......................... 54,257
------------
Total Liabilities ........................... 222,297
-----------------------------------------------------------
Net Assets:
Capital paid-in ............................................... 221,915,387
Accumulated net realized loss on investments
and financial futures contracts .............................. (18,831,320)
Net unrealized depreciation of investments .................... (6,615,049)
Undistributed net investment income ........................... 12,812
------------
Net Assets .................................. $196,481,830
===========================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value)
Class A - $156,401,199/16,744,182 ............................. $9.34
=============================================================================
Class B - $39,464,540/4,225,041 ............................... $9.34
=============================================================================
Class C* - $616,091/65,958 .................................... $9.34
=============================================================================
Maximum Offering Price Per Share:**
Class A - ($9.34 x 103.09%) ................................... $9.63
=============================================================================
* Class C shares commenced operations on April 1, 1999.
** On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest ...................................................... $7,146,987
----------
Expenses:
Investment management fee - Note B ........................... 406,169
Distribution and service fee - Note B
Class A .................................................... 200,631
Class B .................................................... 208,002
Class C .................................................... 1,248
Transfer agent fee - Note B .................................. 284,554
Registration and filing fees ................................. 47,749
Custodian fee ................................................ 25,828
Accounting and legal services fee - Note B ................... 20,035
Auditing fee ................................................. 19,269
Printing ..................................................... 11,985
Trustees' fees ............................................... 6,043
Miscellaneous ................................................ 4,380
Legal fees ................................................... 892
----------
Total Expenses .............................. 1,236,785
-----------------------------------------------------------
Net Investment Income ....................... 5,910,202
-----------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
Net realized loss on investments sold ......................... (3,060,907)
Change in net unrealized appreciation/depreciation
of investments ............................................... (1,451,276)
----------
Net Realized and Unrealized
Loss on Investments ......................... (4,512,183)
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................... $1,398,019
===========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Intermediate Government Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1999
MAY 31, 1999 (UNAUDITED)
------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income............................................................. $12,330,613 $5,910,202
Net realized gain (loss) on investments sold and financial futures contracts...... 1,397,882 (3,060,907)
Change in net unrealized appreciation/depreciation of investments
and financial futures contracts................................................. (6,139,754) (1,451,276)
------------ ------------
Net Increase in Net Assets Resulting from Operations............................ 7,588,741 1,398,019
------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.5912 and $0.2856 per share, respectively)......................... (10,208,310) (4,794,750)
Class B - ($0.5185 and $0.2506 per share, respectively)......................... (2,122,195) (1,108,920)
Class C** - ($0.0726 and $0.2492 per share, respectively)....................... (108) (6,532)
------------ ------------
Total Distributions to Shareholders............................................. (12,330,613) (5,910,202)
------------ ------------
From Fund Share Transactions - Net:*................................................. 35,217,860 (11,953,128)
------------ ------------
Net Assets:
Beginning of period............................................................... 182,471,153 212,947,141
------------ ------------
End of period (including undistributed net investment income of
$12,812 and $12,812, respectively).............................................. $212,947,141 $196,481,830
============ ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Intermediate Government Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED NOVEMBER 30, 1999
MAY 31, 1999 (UNAUDITED)
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold............................................... 7,939,500 $78,080,716 1,856,699 $17,458,034
Shares issued to shareholders in reinvestment
of distributions ....................................... 843,752 8,280,862 426,455 3,998,908
---------- ----------- ---------- -----------
8,783,252 86,361,578 2,283,154 21,456,942
Less shares repurchased................................... (7,917,166) (77,701,525) (3,218,905) (30,304,539)
---------- ----------- ---------- -----------
Net increase (decrease)................................... 866,086 $8,660,053 (935,751) ($8,847,597)
========== =========== ========== ===========
CLASS B
Shares sold............................................... 7,209,397 $71,316,897 1,759,679 $16,566,220
Shares issued to shareholders in reinvestment
of distributions ....................................... 83,053 813,137 72,476 678,483
---------- ----------- ---------- -----------
7,292,450 72,130,034 1,832,155 17,244,703
Less shares repurchased................................... (4,642,116) (45,600,492) (2,224,667) (20,943,415)
---------- ----------- ---------- -----------
Net increase (decrease)................................... 2,650,334 $26,529,542 (392,512) ($3,698,712)
========== =========== ========== ===========
CLASS C **
Shares sold............................................... 2,922 $28,161 70,779 $665,407
Shares issued to shareholders in reinvestment
of distributions ....................................... 11 104 578 5,415
---------- ----------- ---------- -----------
2,933 28,265 71,357 670,822
Less shares repurchased................................... -- -- (8,332) (77,641)
---------- ----------- ---------- -----------
Net increase.............................................. 2,933 $28,265 63,025 $593,181
========== =========== ========== ===========
</TABLE>
** Class C shares commenced operations on April 1, 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Intermediate Government Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD FROM
---------------------------------- APRIL 1, 1997 TO
1995(1) 1996 1997 MAY 31, 1997(8)
------- ------- ------- ----------------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $9.89 $9.79 $9.69 $9.37
------- ------- ------- -------
Net Investment Income ................................... 0.49 0.62 0.67 0.11(7)
Net Realized and Unrealized Gain (Loss) on Investments .. (0.11) (0.08) (0.25) 0.09
------- ------- ------- -------
Total from Investment Operations .................... 0.38 0.54 0.42 0.20
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income .................. (0.48) (0.64) (0.66) (0.11)
Distributions from Net Realized Gain
on Investments Sold ................................. -- -- (0.08) --
------- ------- ------- -------
Total Distributions ................................. (0.48) (0.64) (0.74) (0.11)
------- ------- ------- -------
Net Asset Value, End of Period .......................... $9.79 $9.69 $9.37 $9.46
======= ======= ======= =======
Total Investment Return at Net Asset Value (2) .......... 3.98% 5.60% 4.56% 2.13%(10)
Total Adjusted Investment Return at Net Asset Value (2,3) 3.43% 4.83% 4.19% 1.93%(10)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................ $12,950 $29,024 $22,043 $22,755
Ratio of Expenses to Average Net Assets (4) ............. 0.80% 0.75% 0.75% 0.75%(9)
Ratio of Adjusted Expenses to Average Net Assets (4,5) .. 1.35% 1.45% 1.12% 1.92%(9)
Ratio of Net Investment Income to Average Net Assets .... 4.91% 6.49% 6.99% 7.07%(9)
Ratio of Adjusted Net Investment Income
to Average Net Assets (5) ............................. 4.36% 5.79% 6.62% 5.90%(9)
Fee Reduction Per Share (7) ............................. $0.05 $0.07 $0.04 $0.02
Portfolio Turnover Rate ................................. 341% 423%(6) 427% 77%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, SIX MONTHS ENDED
------------------------ NOVEMBER 30, 1999
1998 1999 (UNAUDITED)
-------- -------- -----------------
<S> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $9.46 $9.72 $9.55
-------- -------- --------
Net Investment Income ................................... 0.62(7) 0.59(7) 0.29(7)
Net Realized and Unrealized Gain (Loss) on Investments .. 0.26 (0.17) (0.21)
-------- -------- --------
Total from Investment Operations .................... 0.88 0.42 0.08
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income .................. (0.62) (0.59) (0.29)
Distributions from Net Realized Gain
on Investments Sold ................................. -- -- --
-------- -------- --------
Total Distributions ................................. (0.62) (0.59) (0.29)
-------- -------- --------
Net Asset Value, End of Period .......................... $9.72 $9.55 $9.34
======== ======== ========
Total Investment Return at Net Asset Value (2) .......... 9.56% 4.33% 0.82%(10)
Total Adjusted Investment Return at Net Asset Value (2,3) 9.49% -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................ $163,358 $168,826 $156,401
Ratio of Expenses to Average Net Assets (4) ............. 1.09% 1.03% 1.06%(9)
Ratio of Adjusted Expenses to Average Net Assets (4,5) .. 1.16% -- --
Ratio of Net Investment Income to Average Net Assets .... 6.43% 6.03% 5.96%(9)
Ratio of Adjusted Net Investment Income
to Average Net Assets (5) ............................. 6.36% -- --
Fee Reduction Per Share (7) ............................. $0.01 -- --
Portfolio Turnover Rate ................................. 250%(6) 267% 191%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: the net investment income, net realized
and unrealized gains (losses), dividends and total investment return of the
Fund. It shows how the Fund's net asset value for a share has changed since the
end of the previous period. Additionally, important relationships between some
items presented in the financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Intermediate Government Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, PERIOD FROM
---------------------------------- APRIL 1, 1997 TO
1995(1) 1996 1997 MAY 31, 1997(8)
------- ------- ------- ----------------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $9.89 $9.79 $9.69 $9.37
------ ------ ------ ------
Net Investment Income ................................... 0.43 0.57 0.60 0.10(7)
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ....................... (0.11) (0.10) (0.24) 0.09
------ ------ ------ ------
Total from Investment Operations .................... 0.32 0.47 0.36 0.19
------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income .................. (0.42) (0.57) (0.60) (0.10)
Distributions from Net Realized Gain on
Investments Sold .................................... -- -- (0.08) --
------ ------ ------ ------
Total Distributions ................................. (0.42) (0.57) (0.68) (0.10)
------ ------ ------ ------
Net Asset Value, End of Period .......................... $9.79 $9.69 $9.37 $9.46
====== ====== ====== ======
Total Investment Return at Net Asset Value (2) .......... 3.33% 4.92% 3.84% 2.01%(10)
Total Adjusted Investment Return at Net Asset Value (2,3) 2.78% 4.15% 3.47% 1.81%(10)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................ $9,506 $8,532 $6,779 $6,451
Ratio of Expenses to Average Net Assets (4) ............. 1.45% 1.40% 1.43% 1.50%(9)
Ratio of Adjusted Expenses to Average Net Assets (4,5) .. 2.00% 2.10% 1.80% 2.67%(9)
Ratio of Net Investment Income to Average Net Assets .... 4.26% 5.80% 6.30% 6.04%(9)
Ratio of Adjusted Net Investment Income to
Average Net Assets (5) ................................ 3.71% 5.10% 5.93% 4.87%(9)
Fee Reduction Per Share (7) ............................. $0.05 $0.07 $0.04 $0.02
Portfolio Turnover Rate ................................. 341% 423%(6) 427% 77%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, SIX MONTHS ENDED
------------------------ NOVEMBER 30, 1999
1998 1999 (UNAUDITED)
-------- -------- -----------------
<S> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $9.46 $9.72 $9.55
------- ------- -------
Net Investment Income ................................... 0.55(7) 0.52(7) 0.25(7)
Net Realized and Unrealized Gain (Loss) on Investments
and Financial Futures Contracts ....................... 0.26 (0.17) (0.21)
------- ------- -------
Total from Investment Operations .................... 0.81 0.35 0.04
------- ------- -------
Less Distributions:
Dividends from Net Investment Income .................. (0.55) (0.52) (0.25)
Distributions from Net Realized Gain on
Investments Sold .................................... -- -- --
------- ------- -------
Total Distributions ................................. (0.55) (0.52) (0.25)
------- ------- -------
Net Asset Value, End of Period .......................... $9.72 $9.55 $9.34
======= ======= =======
Total Investment Return at Net Asset Value (2) .......... 8.74% 3.57% 0.44%(10)
Total Adjusted Investment Return at Net Asset Value (2,3) 8.67% -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................ $19,113 $44,093 $39,465
Ratio of Expenses to Average Net Assets (4) ............. 1.84% 1.77% 1.79%(9)
Ratio of Adjusted Expenses to Average Net Assets (4,5) .. 1.91% -- --
Ratio of Net Investment Income to Average Net Assets .... 5.66% 5.30% 5.23%(9)
Ratio of Adjusted Net Investment Income to
Average Net Assets (5) ................................ 5.59% -- --
Fee Reduction Per Share (7) ............................. $0.01 -- --
Portfolio Turnover Rate ................................. 250%(6) 267% 191%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Intermediate Government Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
APRIL 1, 1999
(COMMENCEMENT OF SIX MONTHS ENDED
OPERATIONS) TO NOVEMBER 30, 1999
MAY 31, 1999 (UNAUDITED)
------------ -----------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period.................................................... $9.66 $9.55
----- -----
Net Investment Income (7)............................................................... 0.07 0.25
Net Realized and Unrealized Loss on Investments and Financial Futures Contracts......... (0.11) (0.21)
----- -----
Total from Investment Operations.................................................... (0.04) 0.04
----- -----
Less Distributions:
Dividends from Net Investment Income.................................................. (0.07) (0.25)
----- -----
Net Asset Value, End of Period.......................................................... $9.55 $9.34
===== =====
Total Investment Return at Net Asset Value (2).......................................... (0.38%)(10) 0.43%(10)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted)................................................ $28 $616
Ratio of Expenses to Average Net Assets................................................. 1.77%(9) 1.80%(9)
Ratio of Net Investment Income to Average Net Assets.................................... 5.30%(9) 5.23%(9)
Portfolio Turnover Rate................................................................. 267% 191%
</TABLE>
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) An estimated total return calculation that does not take into consideration
fee reductions by the Adviser during the periods shown.
(4) The expenses used in the ratios for the period ended March 31, 1995,
represented the expenses of the Fund plus expenses incurred indirectly from
the Adjustable U.S. Government Fund (the "Portfolio"), the mutual fund in
which the Fund invested all of its assets. The expenses used in the ratios
for the fiscal year ended March 31, 1996 include the expenses of the
Portfolio through September 22, 1995.
(5) Unreimbursed, without fee reduction.
(6) Portfolio turnover rate excludes merger activity.
(7) Based on the average of the shares outstanding at the end of each month.
(8) Effective May 31, 1997, the fiscal year end changed from March 31 to May 31.
(9) Annualized.
(10) Not annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Intermediate Government Fund
Schedule of Investments
November 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Intermediate Government Fund on November 30, 1999. It's divided into three main
categories: U.S. government and agencies securities, foreign government bonds
and short-term investments. Short-term investments, which represent the Fund's
"cash" position, are listed last.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000s MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES SECURITIES
Government - U.S. (27.80%)
United States Treasury,
Bond............................................................. 11.875% 11-15-03 $9,000 $10,732,500
Bond............................................................. 10.750 08-15-05 10,000 12,081,200
Bond............................................................. 12.000 08-15-13 8,160 11,086,094
Bond............................................................. 9.250 02-15-16 11,500 14,446,875
Bond............................................................. 8.875 08-15-17 5,100 6,280,191
-----------
54,626,860
-----------
Government - U.S. Agencies (68.26%)
Federal Home Loan Bank,
Bond............................................................. 5.763 08-20-01 1,000 991,560
Note............................................................. 5.375 03-02-01 3,000 2,970,480
Federal Home Loan Mortgage Corp.,
15 Yr Pass Thru Ctf.............................................. 8.500 06-01-06 to 2,809 2,898,479
07-01-07
30 Yr Adjustable Rate Mortgage................................... 6.875# 05-01-17 49 49,668
30 Yr Adjustable Rate Mortgage................................... 7.375# 10-01-18 55 55,723
Deb.............................................................. 5.880 02-10-03 2,000 1,943,000
Deb.............................................................. 6.000 11-18-03 2,000 1,935,000
Note............................................................. 5.500 05-15-02 10,000 9,800,000
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf.............................................. 6.500 04-01-13 to 22,586 22,087,709
05-01-13
15 Yr Pass Thru Ctf.............................................. 6.000 07-01-13 to 17,102 16,380,863
09-01-13
15 Yr Pass Thru Ctf.............................................. 7.000 07-01-14 6,737 6,704,929
30 Yr Adjustable Rate Mortgage................................... 6.350# 03-01-14 to 41 41,009
06-01-14
30 Yr Adjustable Rate Mortgage................................... 7.625# 03-01-22 87 87,430
30 Yr Adjustable Rate Mortgage................................... 6.380# 03-01-27 39 39,442
Bond............................................................. 6.250 05-15-29 3,000 2,720,160
Deb.............................................................. 8.500 02-01-05 13,945 13,986,417
Deb Ser SM-07-B.................................................. 7.550 03-27-07 2,025 1,996,529
Med Term Note Ser B.............................................. 7.500 04-24-07 1,495 1,494,058
Med Term Note Ser B.............................................. 6.610 03-16-09 3,000 2,835,000
Note............................................................. 4.750 11-14-03 11,500 10,790,220
Note............................................................. 5.250 01-15-09 4,500 4,033,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Intermediate Government Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000s MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
- ------------------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Government - U.S. Agencies (continued)
Government National Mortgage Assn.,
30 Yr Adjustable Rate Mortgage................................... 6.125%# 10-20-23 $685 $694,434
30 Yr Pass Thru Ctf.............................................. 6.500 10-15-28 1,920 1,826,058
30 Yr Pass Thru Ctf.............................................. 7.000 11-15-27 to 22,723 22,192,735
04-15-28
30 Yr Pass Thru Ctf.............................................. 12.000 02-15-14 23 25,261
Private Export Funding Corp.,
Sec Note, Ser G.................................................. 6.670 09-15-09 4,500 4,415,625
Small Business Administration,
Deb Ser 90-10D................................................... 8.700 12-01-00 1,097 1,119,915
------------
134,114,829
------------
TOTAL U.S. GOVERNMENT AND AGENCIES SECURITIES
(Cost $194,944,238) (96.06%) 188,741,689
-------- ------------
FOREIGN GOVERNMENT BONDS
U.S Dollar-Denominated Foreign Government Bonds (1.73%)
International Bank for Reconstruction and Development,
30 Yr Bond....................................................... 8.625 10-15-16 3,000 3,397,500
------------
TOTAL FOREIGN GOVERNMENT BONDS
(Cost $3,810,000) (1.73%) 3,397,500
-------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.07%)
Investment in a joint repurchase agreement transaction with
Barclay's, Inc. - Dated 11-30-99, due 12-01-99 (Secured by U.S.
Treasury Bonds, 7.500% thru 11.625%, due 11-15-04 thru 11-15-22
and U.S. Treasury Notes, 6.625% thru 7.500%, due 03-31-02 thru
02-15-05) - Note A............................................... 5.690 2,106 2,106,000
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.50%............................................... 655
------------
TOTAL SHORT-TERM INVESTMENTS (1.07%) 2,106,655
-------- ------------
TOTAL INVESTMENTS (98.86%) 194,245,844
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (1.14%) 2,235,986
-------- ------------
TOTAL NETASSETS (100.00%) $196,481,830
======== ============
</TABLE>
# Represents rate in effect on November 30, 1999.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Intermediate Government Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Bond Trust (the "Trust") is a diversified, open-end management
investment company, registered under the Investment Company Act of 1940. The
Trust consists of three series: John Hancock Intermediate Government Fund (the
"Fund"), John Hancock Government Income Fund and John Hancock High Yield Bond
Fund. The other two series of the Trust are reported in separate financial
statements. The investment objective of the Fund is to achieve a high level of
current income consistent with preservation of capital and maintenance of
liquidity.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B and Class C shares. The shares of each
class represent an interest in the same portfolio of investments of the Fund and
have equal rights to voting, redemption, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission. Shareholders of a class which bears
distribution and service expenses under the terms of a distribution plan have
exclusive voting rights to that distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement transaction. Aggregate
cash balances are invested in one or more repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
FEDERAL INCOME TAX The Fund qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income or excise tax provision is required.
For federal income tax purposes, the Fund has $14,013,467 of capital loss
carryforwards available, to the extent provided by regulations, to offset future
net realized capital gains. If such carryforwards are used by the Fund, no
capital gain distributions will be made. The Fund's carryforwards expire as
follows: May 31, 2001 -- $9,365,539, May 31, 2002 -- $427,159, May 31, 2003 --
$1,950,205, May 31, 2004 -- $1,741,681 and May 31, 2005 -- $528,883.
Availability of a certain amount of loss carryforwards which were acquired on
September 22, 1995 and December 5, 1997 in mergers, may be limited in a given
year. Additionally, net capital losses of $1,578,737 attributable to security
transactions incurred after October 31, 1998 are treated as arising on the first
day (June 1, 1999) of the Fund's next taxable year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund, if any,
with respect to each class of shares will be calculated in the same manner, at
the same time and will be in the same amount, except for the effect of expenses
that may be applied differently to each class.
16
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Intermediate Government Fund
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund entered into a
syndicated line of credit agreement with various banks that enables the Fund to
participate with other funds managed by the Adviser in unsecured lines of credit
with banks which permit borrowings up to $500 million, collectively. Interest is
charged to each fund, based on its borrowing. In addition, a commitment fee is
charged based on the average daily unused portion of the lines of credit and is
allocated among the participating funds. The Fund had no borrowing activity for
the period ended November 30, 1999.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's exposure to
the underlying instrument or hedge other Fund instruments. At the time the Fund
enters into a financial futures contract, it will be required to deposit with
its custodian a specified amount of cash or U.S. government securities, known as
"initial margin," equal to a certain percentage of the value of the financial
futures contract being traded. Each day, the futures contract is valued at the
official settlement price on the board of trade or U.S. commodities exchange on
which it trades. Subsequent payments to and from the broker, known as "variation
margin," are made on a daily basis as the market price of the financial futures
contract fluctuates. Daily variation margin adjustments, arising from this "mark
to market," will be recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks
of entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At November 30, 1999, there were no open financial futures contracts.
OPTIONS The Fund may purchase or sell option contracts. Listed options will be
valued at the last quoted sales price on the exchange on which they are
primarily traded. Over-the-counter options are valued at the mean between the
last bid and asked prices. Upon the writing of a call or put option, an amount
equal to the premium received by the Fund will be included in the Statement of
Assets and Liabilities as an asset and corresponding liability. The amount of
the liability will be subsequently market to market to reflect the current
market value of the written option.
The Fund may use option contracts to manage its exposure to the stock
market. Writing puts and buying calls will tend to increase the Fund's exposure
to the underlying instrument and buying puts and writing calls will tend to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to
the premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Intermediate Government Fund
exposure will be limited to the change in value of the contract over the period
the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms ("credit risk"), or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in highly unusual market conditions. To minimize
credit and liquidity risks in over-the-counter option contracts, the Fund will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchase options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-ended
Statement of Assets and Liabilities.
At November 30, 1999, there were no open written option transactions.
NOTE B -
MANAGEMENT FEE, ADMINISTRATIVE SERVICES
AND TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent on
an annual basis to 0.40% of the Fund's average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended November
30, 1999, net sales charges received with regard to sales of Class A shares
amounted to $48,293. Out of this amount, $5,560 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $24,663
was paid as sales commissions to unrelated broker-dealers and $18,070 was paid
as sales commissions to sales personnel of Signator Investors, Inc. ("Signator
Investors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Signator Investors.
Class B shares which are redeemed within four years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 3.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended November 30,
1999, contingent deferred sales charges amounted to $79,398.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% of the lesser of the current market value
at the time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in whole or
in part to defray its expenses related to providing distribution related
services to the Fund in connection with the sale of Class C shares. For the
period ended November 30, 1999, contingent deferred sales charges paid to JH
Funds amounted to $666.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A, Class B and Class C pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses, at an annual rate not to exceed
0.25% of Class A average daily net assets and 1.00% of Class B and Class C
average daily net assets, to reimburse JH Funds for its distribution and service
costs. A maximum of 0.25% of such payments may be service fees as defined by the
Conduct Rules of the National Association of Securities Dealers. Under the
Conduct Rules, curtailment of a portion of the Fund's 12b-1 payments could occur
under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The
Fund pays transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Stephen L. Brown, Ms. Maureen R. Ford, Ms. Anne C. Hodsdon and Mr.
Richard S. Scipione are directors and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Fund. The compensation
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Intermediate Government Fund
of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may
elect to defer for tax purposes their receipt of this compensation under the
John Hancock Group of Funds Deferred Compensation Plan. The Fund makes
investments into other John Hancock funds, as applicable, to cover its liability
for the deferred compensation. Investments to cover the Fund's deferred
compensation liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always equal and
are marked to market on a periodic basis to reflect any income earned by the
investment as well as any unrealized gains or losses. The investment had no
impact on the operations of the Fund.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended November 30, 1999, aggregated $374,063,881
and $380,910,806, respectively.
The cost of investments owned at November 30, 1999 (excluding the
corporate savings account) for federal income tax purposes was $200,860,238.
Gross unrealized appreciation and depreciation of investments aggregated
$107,467 and $6,722,516, respectively, resulting in net unrealized depreciation
of $6,615,049.
19
<PAGE>
================================================================================
-------------
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- --------------------------------------------------------------------------------
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or accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
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